US industrial policy is back

By Robert D. Atkinson

One reason for Korea's phenomenal economic and technological rise over the last 60 years was that its industrial policies focused initially on spurring the growth of manufactured product exports and more recently on supporting advanced technology production.

The developmental states of other "Asian tigers" such as Taiwan and Singapore actively pursued industrial policies in similar ways, achieving similar levels of success. Yet during much of this period, the lack of an American industrial policy made it easier for Korea and other nations to close the gap with America, and to surpass the U.S. in certain areas.

But that may be finally beginning to change. After being a term of disparagement for at least four decades, the U.S. appears to be on the brink of adopting an industrial policy to boost U.S. leadership and export performance in a wide range of advanced technologies, including AI, robotics and clean energy. If the U.S. Congress can do this, it will change the global landscape of competition.

From WWII to the early 1980s, the U.S. had the world's best national innovation policy, largely designed to contain Soviet expansionism. Indeed, in the early 1960s, the U.S. government invested more in research and development than every other government in the world and all foreign companies.

Given our faith in the "free market" in the U.S., we couldn't call it an industrial policy, and we operated it through mission-focused agencies like the Defense Department, the Department of Energy and the National Aeronautics and Space Administration (NASA), but it played a key role in propelling U.S. technology leadership. Some have termed this role of government, "the hidden developmental state."

But with the fall of the Soviet Union in 1991, coupled with the rise of the U.S. information technology industry and Silicon Valley in the 1990s, America was riding high, with most economists, pundits and politicians eschewing the idea of the need for a national industrial or advanced technology strategy ― either explicit or hidden.

China's rise changes everything. With the increasing economic, military and foreign policy power of China, U.S. policymakers on both sides of the political aisle are waking up to the imperative of doing something. As they look from afar at China's efforts, like "Made in China, 2025," and China's new five-year plan which doubles down on technology industries, policymakers are realizing that without our own national industrial policy, it will be difficult to compete with an economy that tightly links the state and business.

As a result, both Democrats and Republicans are rejecting the dead-end, intellectual straitjacket of conventional economics that holds that industrial policy is a sin. Late last year, Republicans in the House of Representatives released a China taskforce report that calls for a national industrial strategy, including doubling federal funding for basic science, expanding industry-university-federal lab partnerships, expanding funding to help spur innovation in lagging regions and increasing tax incentives for research and development.

Leading Democrats and Republicans in the House and Senate have co-sponsored key competitiveness legislation, including the "Creating Helpful Incentives to Produce Semiconductors" (CHIPs) Act to provide incentives for companies to build semiconductor fabrication facilities in America.

Senate Leader Chuck Schumer (D-NY) is reintroducing his Endless Frontier Act, which invests over $200 billion in 10 key advanced technologies, supports manufacturing programs and strengthens domestic supply chains.

Likewise, President Joe Biden's Build Back Better Plan proposes $300 billion for industrial policy investments, while his "Buy America" executive order will significantly strengthen existing programs to make sure that the federal government and federal contractors buy from firms producing in the U.S.

Because Biden has a Democratic majority in both the House and the Senate (albeit a one-vote majority in that body that Vice President Kamala Harris can decide with her vote), that will make it easier for him to get his agenda passed into law.

These efforts can still, of course, go off the rails, especially in the dysfunctional political climate that is Washington, D.C. Many ― although a declining share of ― Republican members of Congress still hold onto the free-market ideology that sees the role of government as one of largely just getting out of the way.

Some progressives in the Democratic Party are less concerned with international competition and helping U.S. companies. They would rather allocate funds to social programs, such as healthcare, education and government retirement programs.

But still, it feels as if something has changed, and that industrial policy may be back. We should know before the end of this summer.

Robert D. Atkinson (@RobAtkinsonITIF) is president of the Information Technology and Innovation Foundation (ITIF), a leading think tank for science and technology policy based in Washington, D.C.