Jon Gertner's recent article in the New York Times, Does America Need Manufacturing? had a provocative question buried in its content:
Why is it that industrial policy became anathema in the United States, and how can we secure our position in global markets without attention to our nation's competitiveness?
We need industrial policy if we want to retain our economic superpower status - if we don't, other countries with good industrial policy will take it from us.
We've sent a lot of jobs overseas through a cascade of decisions that optimized individual profits to the detriment of the entire economy - that is the kind of problem that industrial policy makes visible. Meanwhile, other countries with good industrial policy (including China itself) have fared much better.
When did the United States lose its ability to formulate industrial policy?
Gertner writes:
If nothing else, the Obama administration’s efforts in Michigan reawaken the conversation about industrial policy. To a large extent, this is an old war among Washington politicians. In the 1970s, it was fought over the federal bailouts of Lockheed and Chrysler — and a few years later during debates over whether the country needed to assist domestic companies in their efforts to gain ground on the Japanese in the semiconductor industry. By the time George H. W. Bush ascended to the presidency, the move away from industrial policy was clear.
“All you had to do in the 1980s was say, ‘That’s industrial policy,’ and it killed anything it was hurled at,” says Senator Levin, who along with Senator Sherrod Brown of Ohio is now among the most vocal advocates of such a policy. “It was the kiss of death. And it set us back 10 to 20 years in terms of manufacturing in America.” What is different now, Levin argues, is that “our companies are not competing with those companies in Korea and Japan. They’re competing with those governments that are supporting them. It’s naïve to believe that we just have to let the markets work and we’ll have a strong manufacturing base in America.”
Countries cannot compete in the long run if they don't create value, and even in today's information age, we add value mostly by making stuff.
China can make stuff cheaper now than we can in the U.S. and without any strategic plan to figure out how to deal with that, we have seen a lot of jobs shipped overseas that are not coming back any time soon.
That's why since globalization really got underway in the late 1990s, we have had largely jobless recoveries, with increases in low wage service jobs, the number of uninsured and the growing income disparity between the highest and lowest paid workers. For an outsider's perspective on this see A Superpower in Decline in Der Spiegel.
Meanwhile, the European countries, especially the ones in Northern Europe, have industrial policy. That is, they have thought strategically about what they need to do, as countries, to compete in the modern world. They know that they cannot compete without ongoing investments in innovation, especially when the economic situation may keep individual companies from investing in R & D and manufacturing.
They have spent some time thinking through how they can compete as small, high cost countries so that they can continue to provide their young people with good jobs - and so that they can continue to grow the tax base they need to provide all the governmental services their people expect.
They know that they need to work together to secure their position in the world economy, making strategic investments to keep themselves on the cutting edge in growing industries.
Personally, I've spent a lot of time in the past year working through European partnership programs. These programs bring companies in strategic industries together, in partnership with university research partners to share the most advanced ideas about innovation, world class manufacturing, and management methods. The whole idea is to make sure that as companies and as countries, they are prepared to compete with the best of the best.
At the same time, contrary to popular understanding here in the U.S., their unemployment and social assistance programs incentivize education and work, and they actively seek to maintain the skills of the long term unemployed during recessions so that they are ready to work when the jobs return.
In direct contradiction to Republican arguments, these policies have resulted in economies that have been much more resilient to the economic crisis. Norway's unemployment is only 3.5%. Sweden is at 8.1% and falling. Denmark is at 6.1%. Yet Denmark is the most heavily taxed country in the world. According to Republican arguments, they should have the highest unemployment rate of all.
We have only the barest beginnings of industrial policy here in the U.S. - the Advanced Manufacturing Partnership is a pale shadow of its counterparts in Northern Europe. We've chosen just a few industries for investment - nowhere near what we would need to do to make a real difference.
Meanwhile, our unemployment insurance and social assistance systems discourage education and do nothing to address the unique problems of the long-term unemployed.
Here, we are in danger of creating a permanent underclass of people who are so de-skilled that Wal*Mart Greeter is the only thing they are qualified to do, and the number of people over 55 who both must work because they cannot retire, and yet who cannot find work, is alarming: it's grown over 300% in the last ten years.
I love this country, and I hate it how ideological purity trumps common sense: we have tremendous assets and there is no reason for any other country to outcompete us - except our own unwillingness to deploy these assets strategically.
For data on Scandinavian unemployment rates, taxes, unemployment benefits and labor market participation see
Taxes and Employment: Is There a Scandinavian Puzzle?, a report from the European Union's Economic Papers
Norway has the lowest unemployment rate from Staffing News
For more on the importance of industrial policy see:
Live and let die– industrial policy in a globalised world
by Karen Helene Ulltveit-Moe, Professor of International Economics
University of Oslo and Centre for Economic Policy Research
EDITED to fix a broken link.