Empty promises of industrial policy

Industrial policy is having a moment. This is the idea that government—state or federal—can provide support to “strategically important” industries. Sometimes this is done for reasons of national security, but more often it is done for the sake of the economic future and competitiveness of the country.

But government-directed industrial policies have been implemented countless times. Lawmakers should take notice of the many failures and stop repeating the same mistakes.

From the New Deal of the 1930s to Obama’s stimulus in 2009 to the CHIPS and Science Act today, many on the left favor when the government targets specific industries to support. In an article somewhat critical of “progressive” economics, Noah Smith writes That one “large, bright spot” as the movement represents “an industrial policy that promises not just to restore American manufacturing, but to revitalize entire areas of the country.”

Some on the right also support industrial policy. Conservative think tank American Compass speaks industrial policy would “align private and public interests” and “enable capitalism to fulfill its promises.” Senator Marco Rubio (R-FL) criticized current federal investments, but speaks he “believes in industrial policy done right.”

Governments have long tried their hand at industrial policy, with disastrous results. This is true for both small and large attempts to conquer the future through public policy.

American industry and manufacturing succeeded despiteand not because of the high tariff policy of the 19th century. Attempt to develop strategic industries in Africa, India and the Middle East. have done little to positively improve their economy. The idea that governments could create the future was at the heart of socialism, and communist countries that tried to implement it failed. Soviet Union central planning and Chairman Mao Zedong agricultural modernization were complete economic disasters and also claimed the lives of millions of people.

Attempts at industrial policy were also made at the state level. In the early days of Michigan statehood, politicians tried to do everything possible to develop their chosen industries. Just like electric cars and renewable energy today, all attention then was turned to “internal improvements”, that is, railways, canals, steamships and lighthouses. Legislators tried their hand at subsidizing these are strategically important industries.

Then-Governor Stevens T. Mason said the privatized railroads were “an extortion of the public.” But the subsequent failures of this government-led industrial policy nearly bankrupted the new state, frustrating the public so much that they amended government law. constitution prohibit government ownership or financing of certain industries. This ban on government industrial policy may have led to great age of entrepreneurship in Michigan.

More than 100 years later, the lessons were forgotten. For the most part last few decadesMichigan has repeatedly tried—and repeatedly failed—to successfully implement state industrial policy.

For example, Michigan values ​​its auto industry highly, which is why lawmakers have subsidized it for decades with a series of large handouts. Taxpayers have paid billions to try to maintain or grow auto jobs. It failed: Michigan only has a little more than half Automotive and auto parts manufacturing jobs were high in 2000, while the industry was growing in other states.

State “economic development” officials have also tried their hand at supporting what they see as important industries of the future. Michigan’s largest newspaper Detroit Free Press posted this headline: “Billion-dollar state shakeup: Could it breathe new life into Michigan’s auto industry?The article explains how a $1.4 billion government grant is being used to make Michigan a “tech epicenter” for the emerging battery industry. Officials promised it would create 40,000 jobs.

But this article is dated 2009. In the 15 years since its publication, this expenditure aimed at developing a “strategically important” industry has been a complete failure. In reality, only 1,677 jobs were created – or 4 percent of the planned figure.

This is typical for such projects. Analysis of Michigan’s Largest Selectmen Incentive Program showed that only about two percent of firms met their job projections and less than 20 percent of total jobs were ever created. That’s not much of a return on the more than $20 billion (and counting) that politicians have collectively promised in Michigan.

Michigan’s example is not unique. There is no evidence anywhere that top-down industrial policies lead to better economic results. Even though politicians have a lot of other people’s money to spend, they don’t have the information or knowledge, let alone the incentive, to spend that money wisely. The states that do the most of this are not the states with the fastest growing economies. In fact, as a rule, the opposite is true.

Unfortunately, no lessons are learned. Instead of looking at the failures of industrial policy at the national and state level, current policymakers are moving forward. Grants of yesteryear to railroads and battery manufacturers are now subsidies for semiconductors and data centers. The lesson for policymakers is not how to implement these programs more effectively or stop them, but rather that these economic development agreements are a convenient way to make headlines for creating jobs without having to actually create any jobs or any responsibility for them. their.