Industrial Policy Is a Nostalgic Pipe Dream
Jun 25, 2024JAMES K. GALBRAITH
To address the public’s anger after four decades of neoliberalism, progressive and center-left economists are calling for innovation to create wealth “for the many” and to deal with climate change, while also reducing market concentration and power. Unfortunately, they are mistaken about where the real problem lies.
SIRACUSA, ITALY – At a recent “summit” in Berlin, prominent center-left economists announced a “new consensus” on industrial policy. Their joint declaration was then published in full by the Columbia University economic historian Adam Tooze, who described it as “remarkable both for its capacious agreement on economic and industrial policy principles and the way they are embedded in a reading of the political and geopolitical risks of the moment.”
According to the Berlin declaration, those risks are of two types. There are “real risks” such as climate change, “unbearable inequalities,” and “major global conflicts.” And there are risks such as “dangerous populist policies” driven by “a widely shared experience of perceived loss of control … stemming from globalization and technological shifts.” This second category, we are told, follows from “decades of poorly managed globalization, overconfidence in the self-regulation of markets, and austerity [which] have hollowed out the ability of governments to respond to such crises effectively.”
The group has nine recommendations: to “reorient our policies” from upholding “economic efficiency above all” to focusing on “shared prosperity and secure quality jobs”; “develop industrial policies ... supporting new industries and direct innovation toward wealth-creation for the many”; direct industrial policy away from subsidies and toward innovation; design a “healthier form of globalization”; address “income and wealth inequalities”; “redesign climate policies” around carbon pricing and infrastructure investment; support the climate transition in developing countries; avoid austerity “while investing in an effective innovative state”; and “reduce market power in highly concentrated markets.”
As I have written before, a consensus of economists – even well-meaning progressives – is a dangerous thing. Consensus, by its nature, is the enemy of consistency and logic. My friends have taken a half-step away from the previous neoliberal consensus, but it is only a half-step, and they aren’t all marching in the same direction.
It is true that ordinary people are angry. Having been brought up on the promise of a middle-class democracy underpinned by stable industrial jobs, many find themselves toiling as serfs in the gig economy. They are ruled by oligarchs, and condescended to by entitled urban professionals, with economists among the worst offenders.
How did this happen? It may be comforting to blame China (or Mexico, or Japan, or even South Korea), but the story properly starts with the breach between labor and anti-war liberals that occurred within the US Democratic Party in the 1970s. That set the stage for President Ronald Reagan and Federal Reserve Chair Paul Volcker’s destruction of US manufacturing and associated unions, followed by the rise of Big Finance and Big Tech in the Clinton era.
Secure your copy of PS Quarterly: Age of Extremes
The newest issue of our magazine, PS Quarterly: Age of Extremes, is here. To gain digital access to all of the magazine’s content, and receive your print copy, subscribe to PS Premium now.
Then came further militarization under George W. Bush, which was intended to consolidate US global power and control over resources, notably oil. The US economy, with Europe as an adjunct, came to rest on banks, bombs, bases, and informatics. Netting out gains and losses, hardly a single new manufacturing job has been created in America for four decades.
To address the public’s anger, my friends call for innovation to create wealth “for the many” and to deal with climate change, while also reducing market concentration and power. But innovation is the reason that market power becomes concentrated in the first place. It’s always about increasing wealth for the innovator and his financiers, and about doing more with fewer people, at less cost. That is how our tech oligarchs – Bill Gates, Jeff Bezos, Mark Zuckerberg, Elon Musk, Peter Thiel, Larry Ellison – came to be. Otherwise, we would never have heard of them.
Of course, addressing climate change is a noble goal. But one must not ignore the inconvenient realities standing in the way. The first is the Jevons paradox: increased energy efficiency allows for new energy uses, and thus tends to increase energy consumption. Just look at how much electricity cryptocurrency mining and AI models consume. Second, big renewable energy projects require big mines (which devour energy), vast new infrastructure (ditto), and – to be profitable – low, stable capital costs that are inconsistent with high interest rates. There is a reason why yesterday’s hot projects are now being downsized or canceled.1
A third, decisive problem is that there is no connection between climate investment and the well-being of the larger population today or even in the near future. Will utility bills, taxes, or interest rates fall as a result? No, they will not. Will new products hit the market because hefty tariffs have kept out goods already produced in China? Of course not. The only way to distribute the wealth benefits of innovation to “the many” is to socialize the entire process. You would need a “soviet of engineers,” as Thorstein Veblen once proposed – like the Manhattan Project or the space program.1
But to do any such thing requires state capacity, and the Berlin summiteers acknowledge that this has been “hollowed out” over 40 years of neoliberal neglect and predation. Who will supervise the new industrial policy? With no one home in today’s government, tariffs and corporate subsidies are the tools at hand, and the US Commerce Department has hired consultants from Wall Street to identify who should receive them. Good luck making that work.
The sad reality is that today’s advocates of industrial policy are often the same people who first advanced the idea more than 40 years ago to try to rescue the Democrats in the face of Reaganomics. Back then, at least, it was plausible. Yet now, as in the past, they seem unwilling to confront the banks, the military contractors, or the tech tycoons who now run the West. They do not call for definancialization, disarmament, or (as John Maynard Keynes once did) the socialization of new investment. They seek to rebuild state capacity while leaving in place all the forces that destroyed it.1
Meanwhile, vast new political forces are filling the vacuum left by neoliberal policies in America and Europe. Given the damage done, there may be no way to assuage the anger driving those “dangerous populists” toward power. Alas, the kumbayas of an outdated idea are not likely to help very much.
Secure your copy of PS Quarterly: Age of Extremes
The newest issue of our magazine, PS Quarterly: Age of Extremes, is here. To gain digital access to all of the magazine’s content, and receive your print copy, subscribe to PS Premium now.
James K. Galbraith, Professor of Government and Chair in Government/Business Relations at the University of Texas at Austin, is a former staff economist for the House Banking Committee and a former executive director of the Joint Economic Committee of Congress. From 1993-97, he served as chief technical adviser for macroeconomic reform to China’s State Planning Commission. He is the co-author (with Jing Chen) of the forthcoming Entropy Economics: The Living Basis of Value and Production (University of Chicago Press).
No comments:
Post a Comment