Tag Archives: industrial policy

Industrial policy – the long and the short of it.

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I’ve been dipping into the proofs of a substantial book, Industrial Policy for the United States by Marc Fasteau and Ian Fletcher, due out in September. It will prove a significant resource for anybody interested in the issue. The book starts with the economic case for strategic government interventions in the supply side structure, arguments that have been gaining traction recently as the utlra-free marketism paradigm fades in the US and elsewhere. The authors focus particularly on increasing returns and technological innovation.They bring a certain zero sum mentality to the analysis – the US must win, other countries must lose – which I don’t share; the technological frontier is broad and granular. But the demolition of the idea that a ‘free’ market is the way to organise the economy at a time of significant structural change is spot on.

The second section explores brief country case studies (“Chapter 10, Britain: No Theory and Little Execution” puts it in a nutshell for the UK: “Britain has become a byword for ineffective industrial policy.”). These are for the most part short factual histories for readers who have no prior knowledge of the countries concerned, with an introductory commentary. The book is wholly US-focused.

The third section is a history of industrial policy in the US from colonial times and Hamilton onwards, while the fourth moves into the US innovation system. It paints a picture of government support for innovation as a de facto industrial policy even during periods when political rhetoric emphasised markets. And it describes the innovation system as the ultimate private-public partnership. The section argues the case for a shift to more active Federal government innovation programmes using both market-creating policies, innovations induced by regulatory requirements and a role for novel types of innovation organisation in the system – manufacturing institutes, for example.

The final two sections consist of industry case studies and regional case studies. In the former are the well-known semiconductor example, and also nanotechnology (“Is America Losing the Future?”, this one is titled. The regional examples are life sciences in Massachussetts and emiconductors in upstae New York.

The book ends with recommendations for the US. While welcoming the Biden policies, the CHIPS and the Inflation Reduction Act, the authors want more: “The challenge now is to maje industrial policy comprehensive, coherent, institutionalized, and a fixture of the policy consensus.” The US needs to focus on its most dynamic industries and develop them as oligopolies to enjoy economies of scale and the profitability for continuing innovation, they argue. They see a national security as well as an economic need for the US to stay at the frontier in multiple industries – just as the Cold War imperatives drove policy in the 1950s and 60s. The final chapter has a lengthy set of specific recommendations for different actors in the US political and industrial systems.

At 670 pages of text and 150 pages of notes and bibliography, has the obvious advantages and disadvantages of its sweep and scale – a superb place to start on any aspect of US industrial policy, but only a starting point for depth on any particular aspect. I found the parts I’ve read very interesting given my relative lack of knowledge about the institutional and historical details in the US. But I applaud the ambition and think the historical perspective suggests the authors are right in drawing a curtain on what – it turns out – is the aberrational period of policy free-marketism.Screenshot 2024-07-23 at 11.23.05

 

 

The future of the factory

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I read my colleague Jostein Hauge’sThe Future of the Factory in proof and never got round to the finished book until now. It’s a very nice synthesis of the impact of four ‘megatrends’ on manufacturing. These four are the rise of the service sector as a share of output, digital automation, globalization and ecological crisis.

After an introductory chapter introducing industrial policy in historical perspective – opening with Alexander Hamilton in life as well as on stage – each trend gets a chapter on how it is shaping industrial activity. One conclusion is that the phenomenon of ‘servitisation’ in manufacturing –  including outsourcing associated high value services – is significant and can lead people to underestimate the importance of manufacturing. The book also argues that the impact of digital automation is exaggerated – it will displace some activities and tasks but there is a lot of hype. It also argues that the retreat from globalisation is similarly over-stated, and the debate disguises power asymmetries between western multinationals and firms in their low or middle income supply chain countries. And the environmental crisis is a further source of this economic and political asymmetry.

The conclusion is that, “in a world of technological change and disruptions, industrialization and factory-based production remains a cornerstone of economic prgoress. Jostein welcomes the recent revival of industrial policies but calls for a focus now on the global South and the place these countries have in the network of production. The book ends with a call for a fairer kind of capitalism than the current model.

All of this is packed into a compact and very readable book. And I’m glad I’m not the only person who saw Hamilton The Musical and wished there had been more economic policy in the show…Screenshot 2024-01-23 at 16.03.49

Industrial policy – back to the future?

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Jon Agar’s new book, Science Policy Under Thatcher, is an interesting dissection – based on newly released government documents from the National Archives – of the u-turn in science policy in the UK in 1987. The campaign against cuts to government funding of research had begun a year earlier, with the launch in January 1986 of Save British Science. Agar argues that those cuts did not mark a specific science policy shift; that came the following year with three changes: a restructuring of science advice to government to increase central control of the machinery; the document A Strategy for the Science Base, which distinguished three tiers of institution, namely a few research-intensive universities, teaching-focused centres, and near-market entities; and finally – under the ideological influence of the Number 10 Policy Unit and its adviser George Guise – a focusing of government funds on pure, ‘curiosity-driven’ science and major cuts to near-market research funding, along with the privatisation of government research labs undertaking such activities.

This was a significant shift away from the previous conventional wisdom. It had emphasised the need for government-funded research to deliver identifiable economic returns. For the Thatcherites, this meant the bad old ways of winner-picking, and civil servants pre-empting the decisions of private sector managers and investors who were far better placed to take risks and judget markets. The switch to funding ‘market failure’ pure science was part and parcel of the dumping of industrial policy (a contradiction in terms, more or less, to the free marketeers).

Interestingly, we have now a policy u-turn back through another 180 degrees. And although I strongly support the need for government to engage with research across the entire spectrum from far from market to near-market, there is a danger of making the same mistakes all over again as policy makers go back round the goldfish bowl. The enthusiasm for ‘sector deals’ makes me very uneasy, as these are almost always the outcome of successful lobbying efforts, and probably encouraging anti-competitive outcomes. After all, which companies are in the ‘auto sector’ today – and which will be in 10 or 15 years? What about new entrants – how do they get in on ‘sector deals’? Similarly, although ‘mission oriented’ policy is terrific in theory – who could argue with a mission like ‘decarbonise the economy’ or ‘deliver high quality social care’ – in practice it risks translating into officials getting involved in battery technologies and enthusing consultancies with the potential new opportunities.

The experience of the 1980s should also make those interested in science policy and industrial policy now reflect a bit before concluding that back to the pre-1987 future* is the right way forward. ‘Should the government mainly fund basic science or near-market research?’ is the wrong question. Governments of course should fund basic science, which is a classic market failure. But the policy challenge isn’t about money so much as co-ordination and facilitation – ensuring industry standards emerge fast enough and at the right level to grow new markets, enforcing competition law, using government procurement to give investors confidence there will be demand for innovations in areas such as health care or education, making sure the financial tax and regulatory system provides incentives to invest in growing tech businesses, and so on.

The overview of the 1987 policy switch is contained in the final chapter of the book, and as it contrasts with previously-published versions of Thatcher’s science policy there will no doubt be further debate about it among historians of science policy. Agar’s account seems (to this non-expert) very well documented and persuasive. The earlier chapters single out specific issues or episodes, such as civil nuclear power, the environment, and the public debates over AIDS and IVF (the Warnock Commission – my colleague Sarah Franklin and her team have done tremendous archival and interview-based research on this). The book could have done with a bit more synthesis as it’s easy to get lost in the weeds. On the other hand, the detail is deeply fascinating for anybody interested in the mechanics of government and policy-making. I really enjoyed reading it.

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*The UK government provided John DeLorean with significant fiscal incentives to produce his futuristic car – which was then only used in the movie Back to the Future