The revival began in the Trump administration, as part of its anti-China offensive, but it has picked up momentum under President Joe Biden, who stocked his economic agencies with figures eager to intervene in the market. “Part of our effort is to create space again for very serious people to really go to bat for the idea that the government has a rightful role to play” in industrial development, says a senior administration official.
But big industrial policy raises a big question with many billions of dollars at stake: What works and what doesn’t?
Advocates point to a long record of achievement, starting with Alexander Hamilton whose “Report on Manufactures” argued for tariffs and subsidies to aid fledgling industry. Government research and funding helped create commercial jet aircraft, the Internet, communications satellites, digital mapping, and several times kept big auto companies alive during economic downturns. Most recently, the Trump administration’s “Operation Warp Speed” bet $10 billion on a number of Covid vaccine candidates and came up with winners.
Critics count a long list of failures, including decades-long efforts to create “clean coal,” nuclear reactors that use recycled plutonium, nuclear fusion, synthetic fuels and supersonic commercial jets. The most recent poster child is Solyndra Corp. which convinced the Obama administration to co-sign $535 million in loans and went broke about two years later.
Even proponents say industrial policy has its limits. While government help can be effective in seeding new industries and bolstering ones that face competitive challenges from abroad, it can’t turn back the clock and revive industries that the U.S. has lost.
That emerging consensus means heartache for many companies seeking government help. U.S.-owned solar manufacturers were counting on the White House to help them revive a domestic industry by blocking foreign competitors. But China and other Asian nations so thoroughly dominate the market that the administration turned its back on their pleas and cleared the way for imported solar panels to continue to pour into the U.S.
“It’s not that industrial policy doesn’t work,” says Robert Atkinson, who has championed government aid for industry since the Clinton administration. “But you have to do things at the right time. Once you have lost significant capabilities and competitors have gained them, there isn’t much you can do.”
These days Atkinson is the president of the Information Technology and Innovation Foundation, a think tank supported by the semiconductor and other technology industries. He has championed computer-chip funding along the likes of the bill passed late last week.
Ultimately, once an industry is lost to foreign competition, the odds of reclaiming it are vanishingly small. Then it’s not mainly a question of inventing new technology — it’s figuring out a way to attract manufacturers and their supporting industries back to the U.S. In the case of solar panels, that would mean creating a big domestic supply of the steps needed to make panels, including refining polysilicon, and producing silicon ingots, wafers and cells. In some of those segments, Chinese firms control more than 90 percent of the global market.
Industrial policy is most effective in helping new industries gain momentum, where they can capitalize on America’s long-standing strength in science and technology. But even then, tough policy decisions remain.
As manufacturing grows increasingly international, it’s not obvious which companies are “American” enough to warrant government aid. Are American companies those that do business in the U.S. or are they ones that have facilities in the U.S. and, if so, must they be factories? Or are American companies those headquartered in the U.S., even if many of their shareholders and employees are overseas?