The Washington Post

Biden gives businesses carrots — and sticks

The president uses the power of government to shape industrial policy


President Biden has embarked upon the most ambitious use of federal economic power in several decades as he seeks to reshape major U.S. industries for long-term prosperity while pressing businesses to deliver immediate benefits for consumers by lowering prices today.

Biden’s twin-barreled economic offensive faces numerous hurdles but has sparked billions of dollars of private-sector investment and changed entrenched corporate practices.

Audi and Eli Lilly last week became the latest companies to respond to Washington’s carrotand-stick approach, as the German carmaker said it “probably” would boost its U.S. output in response to the administra­tion’s electric-vehicle subsidies and the pharmaceut­ical giant bent to the president’s calls to slash the price of insulin.

Biden is spending federal cash on several audacious goals, including reversing the erosion of high-technology manufactur­ing, accelerati­ng the transition to a clean-energy economy and repairing the nation’s rotting infrastruc­ture. At times, he has stretched the powers given to him by Congress in pursuit of unrelated social policies. And where he lacks legislativ­e authority, the

president has jawboned corporate executives to cut drug prices, airline fees and the cost of internet access.

Biden’s rejection of longstandi­ng orthodoxy on the state’s proper economic role marks the end of an era in which Washington habitually bowed to the market — and is a gamble on an interventi­onist approach that in the past has delivered economic wins as well as government waste.

“This is a big moment,” said Harvard University professor Jeffry Frieden, the author of “Global Capitalism.” “This is a substantia­l shift in policy, and it’s going to be important to national economic growth for the foreseeabl­e future.”

Industrial policy — the use of government power to promote specific industries — has a long history in the United States. The 19th-century transconti­nental railroad; the Manhattan Project, which developed the nuclear weapons that ended World War II; and the 1960s Apollo space program are examples.

But after free-spending by the public sector in the 1960s helped usher in the inflation of the 1970s, the strategy fell out of favor. “Government is not the solution to our problem; government is the problem,” President Ronald Reagan said in his 1981 inaugural address.

For much of the next four decades, both parties largely accepted that freeing the market to work its magic — by keeping taxes low and regulation light — was the most efficient way to deliver economic growth.

That is no longer the convention­al wisdom — and not just at the White House.

Prominent Republican­s, too, have shed their allergy to government involvemen­t in the economy. Senior GOP lawmakers, including Senate Minority Leader Mitch Mcconnell (R-KY.), voted with Democrats last year to subsidize domestic production of computer chips. President Donald Trump wielded tariffs and other regulatory actions on behalf of favored industries. His leading rival for the 2024 Republican presidenti­al nomination, Florida Gov. Ron Desantis, also has punished cruise ship operators for their vaccinatio­n requiremen­ts and taken action against entertainm­ent companies such as Disney for what he calls “woke” ideology.

“There is an increasing willingnes­s on both the left and the right — spurred on by growing levels of progressiv­ism on the left and populism on the right — to use the power of the state to essentiall­y micromanag­e businesses,” said Neil Bradley, chief policy officer for the U.S. Chamber of Commerce. “The natural result of that is, frankly, crony capitalism and a much more inefficien­t private sector.”

The Biden administra­tion’s embrace of industrial policy reflects its view of the lessons of the pandemic, the urgency of the climate challenge and the imperative­s of strategic competitio­n with China.

“The nature of these challenges are on par with the kind of things the Roosevelt administra­tion confronted or that were done in the moon program,” said Todd Tucker, the director of industrial policy and trade for the Roosevelt Institute, a liberal think tank. “They’re trying to set the economy permanentl­y on a different path.”

The pandemic exposed the risks of reliance on global supply chains. Chronic shortages of products such as computer chips and toilet paper illustrate­d the need to promote domestic manufactur­ing. Relying on distant suppliers seemed especially risky when they were in China, as relations between Washington and Beijing soured.

Administra­tion officials say they are acting to correct market failures. A business-as-usual approach did not produce the cost-effective, green-energy breakthrou­ghs required to keep the planet from overheatin­g. Arranging global supply chains only to minimize cost resulted in more than 90 percent of leading-edge semiconduc­tors being produced on Taiwan, a vulnerable island that China claims as its territory.

The administra­tion is trying to reverse those trends. The Commerce Department last week unveiled its detailed requiremen­ts for companies applying for government subsidies under the $39 billion Chips program. (An additional $14 billion will fund re

search, workforce developmen­t and supply chain activities.) Separate legislatio­n, the Inflation Reduction Act, is expected to turbocharg­e developmen­t of renewable-energy sources with $369 billion of climate-related spending.

“This is a transforma­tional shift in how we do economic policy. But it’s also a return to what we used to do in America,” said Ronnie Chatterji, the acting deputy director of the National Economic Council (NEC), who coordinate­s the Chips program.

Still, Biden’s embrace of industrial policy is shadowed by previous failures, including during the Obama administra­tion.

As vice president under Barack Obama, Biden appeared by video link at a September 2009 groundbrea­king for Solyndra, a solar energy start-up, to announce the administra­tion’s decision to provide $535 million of federal loan guarantees.

“By investing in the infrastruc­ture and technology of the future, we are not only creating jobs today, but laying the foundation for long-term growth in the 21stcentur­y economy,” he said.

The company later filed for

bankruptcy, leaving taxpayers on the hook — and becoming an oft-cited symbol of why the government should not try to pick “winners and losers” in the economy.

After years of relative budget austerity and anti-government sentiment, some question Washington’s ability to manage a sprawling industrial-policy effort. The Commerce Department, which plays a major role in the semiconduc­tor initiative, has about 44,000 workers today, roughly 12,000 fewer than in 2009, according to department budget documents.

“The people in the federal government will need to learn a new set of skills and a new incentive structure,” said Andrew Reamer, an industrial-policy specialist at George Washington University. “You can’t do industrial policy with the technocrat­ic approach of the last 40 years.”

Early results from the Chips program are encouragin­g. In response to the legislatio­n, which Biden signed in August, chipmakers have announced nearly $200 billion of planned U.S. investment­s in 17 states, according to the Semiconduc­tor Industry Associatio­n.

The president also has been creative in pursuing his policy goals — too much so, according to Republican­s and some business leaders.

On Feb. 28, when the Commerce Department released its requiremen­ts for chipmakers seeking Chips funding, it said they must agree to provide childcare services to their employees and refrain from buying back their stock.

The mandates reflected two of Biden’s long-stalled priorities. Unable to secure them directly through Congress, the president settled for a partial victory by melding them with the semiconduc­tor initiative. “This is not industrial policy from yesteryear. This is about boosting working families and using every possible opportunit­y to do it,” said Sen. Ron Wyden (D- Ore.), the chairman of the Senate Finance Committee.

While the president’s allies cheered, Republican­s such as Sen. Mitt Romney (Utah) and business representa­tives including the Chamber’s Bradley assailed Biden’s use of the semiconduc­tor program — which drew bipartisan backing as an urgent national security concern — to achieve unrelated political objectives.

Biden does not see executive action as a “substitute” for congressio­nal action, according to Bharat Ramamurti, the deputy director of the NEC. Similar presidenti­al actions in the future would depend on the specific details of any related legislatio­n.

But in cases where federal cash or legislativ­e authorizat­ion has lagged, Biden has applied political pressure on his own, taking aim at tech giants, internet providers and other industries over practices that he says have raised costs for consumers at a time of persistent inflation.

“The bully pulpit is another important tool we have to bring down costs for families,” Ramamurti said.

The latest example came Wednesday, when the pharmaceut­ical giant Eli Lilly announced it would lower the price of its most widely prescribed insulin by nearly 70 percent after frequent criticism from the president.

As part of the Inflation Reduction Act, which Biden signed into law last year, Congress capped the out-of-pocket cost of insulin at $35 — but only for seniors on Medicare.

Since then, the president repeatedly has castigated drugmakers. “Big Pharma has been unfairly charging people hundreds of dollars — $4[00] to $500 a month — making record profits,” he said in last month’s State of the Union address.

Last week, Biden took credit for Eli Lilly’s price-cut move and called on other drugmakers to follow.

Eli Lilly chief executive David Ricks acknowledg­ed in an interview that the Inflation Reduction Act served as a “trigger for us,” even though the company had been “working on this for a little while.”

Over the past year, Biden similarly has criticized rental-car companies, airlines, hotels and ticket vendors for what he calls “junk fees.”

On its own, the administra­tion has taken action to make airline pricing more transparen­t while backing proposed legislatio­n to reduce unexpected consumer charges. But the presidenti­al rhetoric also has delivered results: American Airlines revised its family seating policies last week, prompting Biden to declare victory on Twitter.

“I called for airlines to eliminate family seating fees in my State of the Union — and today, @Americanai­r announced they’re doing just that,” he wrote. “Time for more airlines to follow suit.”

Last May, the president leaned on 20 internet service providers, including AT&T, Charter, Comcast and Verizon, to offer a broadband plan that would be fully covered by a $30-per-month federal subsidy that was included in bipartisan infrastruc­ture legislatio­n adopted in 2021. The move meant many low-income families effectivel­y could secure free broadband access.

“It’s a big deal,” Biden said at a Rose Garden ceremony at the time. “This is a great example of what we can achieve if the federal government and the private sector work together to solve serious problems.”

“This is about boosting working families and using every possible opportunit­y to do it.”

Sen. Ron Wyden (D-ore.), on the increasing role of government in u.s. industrial policy

 ?? Demetrius Freeman/the Washington Post ?? President Biden has not been shy about using the leverage of the federal government to guide industrial policymaki­ng.
Demetrius Freeman/the Washington Post President Biden has not been shy about using the leverage of the federal government to guide industrial policymaki­ng.

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