The Empty Promises of Industrial Policy
Industrial policy is having a moment. This is the idea that the government—state or federal—can provide a boost to “strategically important” industries. This is sometimes for national security reasons, but more often, it is done in the name of a country’s economic future and competitiveness.
But government-directed industrial policy has been tried countless times. Lawmakers should notice its mountain of failures and stop repeating the same mistakes.
From the New Deal in the 1930s to the Obama stimulus in 2009 to the CHIPS and Science Act today, many on the left cheer along when the government picks and chooses specific industries to support. In a piece somewhat critical of “progressive” economics, Noah Smith writes that one “big, bright spot” for the movement is “industrial policy, which promises not just to restore American manufacturing, but to revitalize whole areas of the country.”
Some on the right are falling for industrial policy as well. The conservative think tank American Compass says industrial policy will “align private and public interest” and “allow capitalism to deliver on its promise.” Sen. Marco Rubio (R–Fla.) has criticized current federal investments but says he “believes in industrial policy—done right.”
Governments have long tried their hand at industrial policy, and the results are abysmal. This is true for both small and large attempts to win the future through government policy.
American industry and manufacturing succeeded in spite of, not because of, the high tariff policies of the 19th century. Trying to grow strategic industries in Africa, India, and the Middle East did little to positively improve their economies. The idea that governments can create the future was at the heart of socialism, and the communist countries that tried to implement it failed. The Soviet Union’s centralized planning and Chairman Mao Zedong’s agrarian modernization were complete economic disasters—and also killed millions of people.
Attempts at industrial policy have been made at the state level as well. During the early days of Michigan’s statehood, politicians attempted to go all-in on nurturing chosen industries. Just like electric vehicles and renewable energy today, all the rage then was for “internal improvements,” which meant for railroads, canals, steamships, and lighthouses. Lawmakers tried their hand at subsidizing these strategically important industries.
The governor at the time, Stevens T. Mason, said privatized railroads were “extortion from the public.” But the resulting failures of t
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