Did someone just say “Industrial Policy?”

February 03, 2017


Let’s take a breath and step back from our circus-like introduction to the Trump era.

A few weeks ago, we were trying to decode voters’ messages in the US and UK. Donald Trump, Bernie Sanders, Hillary Clinton, and millions of voters said we have lost trust in the way we’ve managed globalization. Brexit and the US presidential campaigns broke the spell we had been under during 20 years of neoliberal free trade orthodoxy. Even before the election, growing public opposition had worn away support for TPP, the 12-country trade deal. TPP failed because our free trade approach to globalization is exhausted

Decades of neoliberal market fundamentalism had conditioned us to accept millions of lost jobs, reduced bargaining power for workers, deindustrialization, stagnant wages, and unchecked climate change.

We are ready for a new approach that would balance trade and share the gains from globalization. Labor, environment, and other civil society groups have specific goals - deal with inequality, climate change, access to medicine, food security, internet freedom, and other non-economic issues at home and abroad.

Donald Trump openly endorses industrial policy. To me, “industrial policy” means intervening in markets to prevent or correct market failures. For decades, it was the policy that could not be named in Washington DC. Industrial policy is the conceptual opposite of neoliberal free market - free trade orthodoxy.

Industrial policies can be good or bad. Good ones can serve legitimate national interests and bad ones cause grief - just like good or bad policies for health care, banking, infrastructure, and education. Good industrial policies can help us manage globalization better.

  • China, Japan, Korea, Germany and other countries have very effective well-designed industrial policies that serve their national interests. Japan, Korea and other countries made extraordinary progress from third-world to first-world status using industrial policies. America industrialized under Alexander Hamilton’s industrial policies. The New Deal was a collection of industrial policies.


  • Buy American is an industrial policy that makes perfect sense to workers and voters. California buys steel to build the Bay Bridge. Why would we buy unfairly subsidized steel from China and accept the headaches from bad welds and cost overruns?


  • Dean Baker describes a great way to lower prescription costs. We could fund and manage clinical trials as a public program. In addition, we could retain more public control over how new drug patents are commercialized. This industrial policy would bring drugs to the market based on public health criteria, rather than profit. Taxpayers pay directly for prescriptions through Medicare, Medicaid, and the Veterans Administration. We could pay ourselves back in lower drug costs, and focus on medical outcomes, not marketing goals.


  • Publicly funded R&D is an industrial policy. We should modify current practice, to retain greater control of licensing for publicly-owned patents. We can specify a nominal licensing fee when a patent is commercialized in the US, and a higher fee if production goes offshore.


  • Large companies can entice states into bidding wars for a new facility. Instead of bidding wars, states could establish economic development funds. Washington State and California have billion-dollar initiatives targeted at biotech. Washington’s fund solicits bids from all companies for a portion of the development fund. Each bid is scored according to measures of public good, such as the number of family-wage jobs with benefits, or investment in plant and equipment. We could also require a commitment (subject to clawbacks) to maintain employment for a minimum period of time. This industrial policy reverses the power relationship between states and companies. Now, states have a scarce resource - access to the fund - and companies bid against each other for the scarce public resource. 


  • Companies should state in their annual tax filings how many workers they employ in the US and how many in other countries.


  • We can create a global institution for labor and environment. Investors and global companies already have 3 global financial institutions - the World Trade Organization, International Monetary Fund, and World Bank. Civil society needs its own global institution with powers and authority comparable to the WTO, IMF, and World Bank.


  • The Sierra Club proposed a border adjustment mechanism for future trade deals. Countries have made environmental commitments under previous trade deals. If they meet those obligations, products from their country can have access to our markets with low tariffs. Countries who fail to meet their obligations will see a border adjustment on all their products. This gives them a market incentive to meet their commitments.


  • That idea can be generalized. Countries have also made commitments about improving labor rights, and controlling human trafficking. A similar border adjustment can apply when countries fall short of their commitments for labor rights and human trafficking. The same mechanism can enforce commitments to investors, such as currency manipulation, unfair subsidies, and unjust expropriation of property.


  • The Export-Import Bank is a remnant of the New Deal. The Export-Import Bank guarantees loans for exports. This is an industrial policy because of a requirement for 85% domestic content. The product must be made, mostly, in the US.


  • Many states subsidize residential solar panels, electric vehicles or wind generators, with special preferences for locally produced materials. This is an obvious industrial strategy - one of many required to control climate change.


These and many other industrial policies would be in direct conflict with neoliberal free trade orthodoxy. It makes no sense to allow free trade orthodoxy to block policies that express our values as a country. Effective well-designed industrial policies should drive our trade policy, not the other way around.

Said differently, we cannot tweak TPP. We need to rethink our approach to globalization.

Design criteria for our industrial policies should include balanced trade, keeping capital investment flows roughly in balance, and most importantly balancing public interests with investor interests.

Effective industrial policies drive upward spirals in our domestic manufacturing capacity, employment in family-wage jobs, labor rights, human rights, and environmental protections at home and abroad. We can choose policies that share the gains of globalization more broadly. Public policies are necessary to address the two biggest market failures in human history - inequality and climate change.

We can pursue our legitimate national interests, raise standards around the world, and build a sustainable global system that works for everyone.

Follow Stan Sorscher on Twitter: www.twitter.com/sorscher


Showing 3 reactions

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  • William Ryan
    The competitive tool kit for industrial policy would be a great start but don’t forget to put union busting as a felony in the kit. We also need to reverse Citizens United, reinstate Glass-Steagall, restructure the winner take all code of global piracy to a more democratic trade laws of globalism business structure to where the benefits of globalism benefits more is better. Make it law in congress that only a majority is needed to pass laws, not a super majority. Put Joe Stiglitz on the President Trumps advisory panel.
  • Franklin Kirkland
    Defining an industrial policy would require STRATEGIC thinking and action. We have no recent history of being able to do either. Any self-respecting, future-looking company has a strategic planning function. It is time we adopt a USA, Inc. mentality. This certainly applies to smarter trade policies but also to the higher level thinking required to establish the elements of an industrial policy. But we have no institutional mechanism with the charter to develop and implement industrial policy. My suggestion, undoubtedly too radical, is a fourth branch of government patterned after the Supreme Court. It would have only a small number of proven principals, typically ex-senators, retired industry leaders, and retired senior academics selected by the Senate a la the Supreme Court nomination process. The concept is basically patterned after the Defense Science Board, but taken to a national level. To give it sufficient clout, Congress would have to vote a supermajority to overrule its approved policies. Otherwise they would become law by default. Imagine the power of USA, Inc. if it acted strategically like China, Germany, etc. do.
  • Harry Moser
    Excellent article. I believe there is a a more focused way to describe a desirable industrial policy: Change key factors to make the U.S. the logical location for companies to produce 90% of what they sell in the U.S. My choices of factors are: skilled workforce, VAT or border adjusted tax, corp. tax rate, regulations, healthcare costs, basic education, USD exchange rate. We are working on a Competitiveness Toolkit which would be the basis for designing such an industrial policy. The government should create an environment in which we can compete. Companies should then decide what to produce here.
    Anyone interested please contact harry.moser@reshorenow.org.