Why America Needs an Industrial Policy

This NYTimes article, “Does America Need Manufacturing?,” perfectly encapsulates why industrial policy must become a major component of the government’s efforts to renew and rebuild the American economy. There are strong echoes in this article of Clyde Prestowitz’ “The Betrayal of American Propserity,” a book that convinced me to move away from software programming and toward economics.

Important Quotes:

For decades, the federal government has generally resisted throwing its weight - and its money - behind particular industries. If the market was killing manufacturing jobs, it was pointless to fight it. The government wasn’t in the business of picking winners.

Repatriating a high-tech manufacturing plant to the United States is not simply a matter of hiring the local talent. It requires good-old foreign know-how. “We call it ‘copy exact,’ ” Forcier said. “We bought a company in Korea that had the technology around this type of battery and had developed the manufacturing process there. We basically brought that here, copied it exactly and scaled it up.” A123 also brought a team of six Korean engineers to help transfer the technology to the U.S. and sent a team of Americans to Korea to learn.

And most importantly to what I study:

Federal agencies like the Department of Energy have long financed scientific research - through university grants, for instance - on technologies like lithium-ion batteries. But a basic feature of government policy is to allow corporations and entrepreneurs to pick through the results of that research, commercialize the promising ideas and let the market sort things out. In other countries, it often works differently. Governments are more willing to help companies pool information about a new industry or technology and (especially in Korea and China) assist with the early-stagecommercialization of products, including the construction of plants. While Patil was getting booted from executive offices at Ford, companies in Asia, in some cases with a boost from their governments, focused on streamlining the manufacturing process. Battery performance steadily improved, and costs dropped. By the mid-2000s, it was clear that if the lithium-ion battery continued to get better at the same rate, the product might soon be suited for automobiles.

This is the story of a hundred different small industries that have been moved out of the United States due to the more aggressive policies of other governments. At some point, the U.S. will have to respond if it ever hopes to change the economy’s dynamic.