Coverage

Left, Right, and Center Discuss Federal Industrial Policies

| Sep 23, 2020

Remarks by Wells King (Beginning at 06:38)

I’d like to begin where I think there’s probably the most common ground. Which is our diagnosis of the American economy, the challenges that I think demand in industrial policy, then I’ll move on to American Compass’s role in these debates and how I sort of read the political landscape going forward.

So I think there were four critical interrelated challenges that an industrial policy would normally be suited to address, where I also think that they’re particularly salient on the right as conservatives assess our economy, the pivotal role for an ambitious federal policy agenda.

The first is a decline in business investment and the concomitant rise and financialization. I think the best work on the right of center on this topic is a report from Senator Marco Rubio. It makes a consequential shift away from the traditional role of business in our economy as a net borrowing institution that functions as the principal source of investment and spending and that drives economic productivity, and what we’ve seen in recent years I think it’s the first time that the non-financial business sector spends less on capital development and more on financial assets and therefore the engine of productivity and economic growth is just not working as it used to in capitalist economy.

And then along with this. We’ve also seen Willy Shih and Gary Pisano of Harvard Business School characterized the failure on the part of business and government to invest and tend to the industrial commons. That is the R&D know-how, engineering skills, and core competencies related to manufacturing-specific technologies. These really formed the foundation of innovation for global competitiveness and advanced technologies.

And so I think in that way, that our American political and business leadership failed to appreciate the links between manufacturing innovation and have blindly accepted false hope in a post-industrial innovation-based economy.

Which brings me to the next critical challenge, as I see it, which is losing ground on innovation. I think this is probably clear to every participant here. As we see the struggles of leading American companies, the failure for instance of Boeing’s 737 Max. Intel losing the lead and semiconductor technology to TSMC. What we’ve seen are a real loss and American critical technologies.

Next is I think a loss of economic resilience, which really the COVID-19 pandemic is casting a really harsh spotlight on. I think it’s left us unacceptably exposed, our capacity depleted, and our essential workers turning to China for equipment.

So, simply put, when factories leave our shores, not only do the jobs leave, but also the expertise and innovation go with them and when productivity growth, innovation is needed, such as now, they’re nowhere to be found. And when we lose growth to rival nations, we lack the capacities required to lead again, which brings me to the biggest challenge and my fourth which is the rise of China. I think the imperative to rebuild our industrial capacity will not end when this pandemic recedes and it will take center stage in our generation-defining contest with China.

Our contest with China is perhaps the clearest example of how the United States has suffered from offshoring our industrial capacity.

America invented the core technologies of the digital age: semiconductors, LCDs, LEDs, and more. But today we produce but a tiny share of the world’s high-tech exports. China produces nearly four times as much and some indicators suggested China’s catching up to us and in areas like 5G, they’re already ahead.

We need to rebuild our industrial capacity and it really creates I think a strong guiding principle for strengthening our economy’s foundations, reviving innovation and productivity growth, and delivering widespread prosperity for American workers, their families, and their communities.

But accomplishing it is not just a matter of winning a trade war with China. Supply chains can run out elsewhere or cajoling a manufacturer to open up a new plant stateside.

It really requires us to rethink the role of government in economic development. So, in an ideal world, you know, conservatives could count on the market to drive the need for progress in our economy, but in this case, it has no interest in doing so, and to the contrary, the market is shown pretty clearly that left to its own devices, it will really push supply chains abroad and that regaining the advantages that we so casually cast aside will require a pretty clear national strategy and focused attention across a number of areas of public policy.

So what I think is really actually missing in this public policy debate. Is a distinctively conservative approach to our economic policy. But America’s right of center coalition lacks the language and the concepts. To accurately describe and understand much less to address these challenges. And that’s largely a product of modern conservative ideology which was forged in the crucible of the Cold War.

The modern right of center coalition really is a product of an ideological cold fusionism. That joined libertarians, social conservatives, and Cold War hawks during a period in which the defeat of communism, both at home and abroad, was of preeminent importance to all three factions. That coalition saw its high watermark in the Reagan presidency and really fell into an uneasy peace in the wake of the Cold War. When the specter of communism that fused these three groups together had had had gone away. And what we’ve seen since I think a shocking among these factions.

But the effect of this coalition today has had really detrimental effects on conservative economic thinking. Virtually all right of center public policy institutions in Washington are either libertarian or fusionist.

Their mission statements will invariably include phrases like free markets or economic freedom or free enterprise or economic choice and their policy agendas are centered on Reaganite dogma of tax cuts and deregulation.

So for having for decades outsourced are thinking to libertarians, we conservatives now watch from the sidelines as libertarians debate with progressives about how best to pursue their basically shared and more or less unquestioned priorities of maximizing consumption and aggregate economic growth.

And this is where I think conservatives need to weigh in and really meet the industrial policy challenge by reexamining some of the very basic assumptions of right of center economic policy for the last 40 years.

And so this intra-conservative fight over industrial policy, it really is an ideological one between conservatives and libertarians and it’s one that conservatives haven’t had a distinctive viewpoint on for quite a while. And this is really why American Compass was formed, to address these challenges and coordinate the individuals and initiatives that are already underway and addressing them.

They’re already a number of thought leaders in think tanks and the academy, the media, the Administration, and leading Senate offices.

Our mission is to coordinate these types of efforts and ultimately to restore an economic consensus on the right that emphasizes the importance of family, community, and industry to our nation’s liberty and prosperity. This is a heterodox mission within the right, and speaking about the limitations of markets for achieving national goals and asserting a positive role for public policy does not necessarily sit well with everyone on the right of center.

But our project is in fact conservative and I think the truest sense of the term. We actually seek to recover and to conserve an often-overlooked tradition of American political economy, to champion a robust role for public policy and shaping the national economy. And that’s one of the American System.

The American system emerged from crisis from our young nation’s awareness of our vulnerabilities during the Washington administration and then later as we emerged out of the War of 1812.

It was born out of Hamilton’s own writing on political economy as Treasury Secretary and more was more fully developed by Henry Clay and really tried under the presidency of Abraham Lincoln.

It integrated three mutually supporting priorities. One was protection and development of infant industries. The second was a national financial system and the third was internal improvements or what we would today call it infrastructure.

And this coalition, an American school that drove an American system from Hamilton to Lincoln to Eisenhower, kept alive its spirit from the nation’s founding through the Cold War, and in its various expressions. this American System helped to deliver the unparalleled prosperity that Clay and other leading American statesmen have heralded and I think that made the American economy and industry the envy of the world for decades.

And this is American Compass’s claim: the true American tradition of economic policy is in fact one of crafting bold policies and committing vast resources to pursue national goals and ideals. In our inaugural essay series, entitled “Rebooting the American System,” we centered on that tradition and addressed foundational challenges, native to the right in rebooting — like going back and critiquing some of the rights theoretical hang-ups with planning and state lead development, for instance, the knowledge problem of Hayek, and reassessing the conventional goals of right of center economic policy thinking.

This sort of foundation laying work is critical within the central parts in debates and for the broader American Compass mission and it’s made possible our recent forays into the debate over industrial policy, which I’ll touch on briefly now.

In June we organized an essay symposium on industrial policy and the challenge of restoring supply chains. We gathered experts from a number of fields those working and think tanks universities and industries, starting from various points along the political spectrum. But the goal was to delineate described levers available to policymakers, as we think about trying to reshore supply chains and rebuild American industrial capacity.

Three priorities emerged from that symposium that I think should guide our efforts going forward to retake leading innovation. The first is what I call investing in the basics, which is really just committing our public funding to the building blocks of our innovation-based economy. This looks, first and foremost, like the fact that we need to invest in ourselves, beginning with our infrastructure, such as considering the role of an infrastructure bank.

For a very long time, state and local governments have been the principal source of our infrastructure spending. But the pandemic is crippled their finances and I think it’s clear there’s a federal role here. It’s also a leading priority of those within the manufacturing and supply chain industries themselves.

The next I think is pretty competitive R&D alongside our investment in infrastructure. We need to spend and expand on investment in R&D, looking especially beyond just our basic research but into really trying to develop our manufacturing prowess. That goes from the lab to the marketplace, thinking about commercialization. One way of doing this as what Willy Shih has proposed is essentially pre-competitive R&D consortia that allow private sector firms to collaborate develop platform technologies that they can all build from and compete with.

The next priority that emerged from our symposium was making America the best place to build, which really is about creating incentives and opportunities for private investment. I think this first looks like expanding our really anemic existing R&D tax credit. Rob Atkinson proposed for us in an essay, an American innovation and competitiveness tax credit that would reduce liability for a firm by 30% and spending in R&D and reward investment and catching up with our rivals and offer far more generous incentives to private firms.

There’s a role, I think, to for more conventional priorities of the right through cutting out our regulation, specifically our environmental laws which have ratcheted up continually higher and have constrained the expansion, especially of new firms and businesses and plants.

And then there’s also a role for local content requirements within this. This is a blunt tool for a blunt good, but rather than the technocratic reforms that control and incentivize expansion and production of particular goods, I think a local content requirement that just requires some or all the final goods’ inputs to be manufactured domestically. It helps us to reliably achieve I think a stated purpose of industrial policy and reshoring supply chains.

And then the last priority that emerged from that symposium is building the supporting structures and institutions of industrial policy. The first of these is labor market policy — thinking about ways that we can reform things like trade adjustment assistance for instance. Actually support rescaling and retraining and trying to take our workforce that’s trade-exposed and channeling them into sectors that are growing.

So TA should, for instance, provide training to any people who are unemployed for any reason, as opposed to just those who are trade-exposed and help them to navigate back into productive work.

I think the last most important piece of this is actually trying to rethink the design of the federal government itself. We really need to be designed to execute on supply chain strategy and it needs the capacity to do so. Right now, there’s no single department or agency with a mission to develop a comprehensive strategy for industrial policy or to facilitate its execution. Instead, responsibility and authority are just dispersed across a number of agencies. I think we should consider consolidating existing departments and agencies. And this could look like something like what can Ganesh Sitaraman of Vanderbilt University has described as the Department of Economic Resilience, which would feature divisions like trade, export promotion, economic security, industrial policy, and statistics.

And with a dedicated department or at least some kind of restructuring or agencies, I think the United States could more effectively gather information on economic competitiveness and global supply chains. Develop a national strategy, a bit like the State Department does already with national security and execute on our long-term priorities that reshoring will require.

So those are the sort of quick sketch of our first foray into industrial policy. Again, we aren’t like a conventional think tank. We don’t have fellows, what we view ourselves as is an institutional flagship trying to coordinate existing efforts that are going on. And that’s symposium was our first step into the industrial policy debate, convening a number of voices from across the political spectrum from a number of institutions and sectors within the economy, and I hope that this is what this particular form does too. Thank you again for the opportunity.

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Wells King

Wells King is the research director at American Compass.

@wellscking