Industrial Policy In The News Today

Both The New York Times and Wall Street Journal mention the phrase "industrial policy" today but neither of them attempted to come to terms with what it really means.

My old friend John Bussey, writing The Business column in the Journal, describes at some length how U.S. policymakers are trying to persuade China that they shouldn't really be pursuing a model of state-run capitalism, in which state-owned enterprises are favored and private (foreign) companies are not given preferential treatment. It's a hopeless cause. We are never going to persuade the Chinese not to do something that they fundamentally believe in. Bussey seems to agree that American words alone will not change any meaningful aspect of China's economic policies and adds: "So what to do? U.S. companies won't talk on the record about troubles in China because they fear retaliation. Increasingly, though, some top executives have wondered aloud whether the U.S. itself needs more government-led industrial policy." Unfortunately, Bussey drops the subject at that point. It is an explosive subject in the pages of the Journal because it is ideologically taboo.

The Times, in a piece that is not protected by a reg wall (http://www.nytimes.com/2012/02/03/business/economy/a-lure-to-keep-jobs-m...), seeks to analyze the Obama Administration's efforts to persuade more U.S. companies to onshore, insource, backshore, call it what you will. It means bring jobs home from abroad, or else keep them here in the first place. The writer, Annie Lowrey, appears to be skeptical that manufacturing really matters in America and quotes a professor at New York University, also a Nobel laureate in economics. Now, THERE'S someone who really has his pulse on what's happening in America.

As the article progresses, Ms. Lowrey notes that Obama is cutting taxes for manufacturers that produce goods in the United States and taking away tax breaks for moving jobs offshore. "It all adds up to what economists might call an industrial policy, the out-of-favor practice of using tariffs, taxes and other measures to help a particular industry," she writes. "The White House avoids the term because it implies that the government is picking winners and losers."

Who said industrial policy has to include tariffs and who said it is out-of-favor? The writer is out of her depth. A solid industrial policy concentrates on promoting new technologies, new manufacturing and new jobs while encouraging older manufacturing sectors to keep up the pressure to streamline themselves, as the American auto industry has done. Tariffs are not part of the solution because they invite retaliation. And it's clear that Obama is pursuing many elements of industrial policy in subsidizing and supporting solar and wind energy, and lithium ion batteries and all-electric or hybrid cars. It's one of the most important debates we face as a nation.

So I welcome the Journal and the Times to the debate. I only wish they would dig into the subject and ask the big questions. One of them is this, Rather than fighting over relatively modest steps to invent new industries and reposition the American economy for the 21st Century, shouldn't we dramatically improve and increase these efforts? That's the key to any competitive response to China. Just bloviating in public is not going to persuade the Communist Party to change course.