Reshoring with the Government We Have

In his thoughtful contribution to the American Compass symposium, “On Agency Structure,” Ganesh Sitaraman addresses two problems:  fragmentation of authority over industrial policy and regulatory capture. The problems are real, but I am not sure that his proposed solutions—a single, centralized department of industrial policy and more powerful career civil servants—are politically realistic or necessary.

His proposed new Department of Economic Resilience “should subsume the Department of Commerce, take on USTR, SBA, TAA, export promotion agencies, economic sanctions, and a smattering of other agencies and offices…” In essence, this is the model that Congress followed when it created the Department of Homeland Security, cobbled together by putting the Coast Guard, the Secret Service, the Federal Emergency Management Agency (FEMA), the Immigration and Naturalization Service, and the Environmental Measurements Laboratory, among others, into a single cabinet-level department. It is not clear that any synergies resulted.

What is more, the danger of politicization can only increase when a single political appointee sets the agenda for many formerly independent entities. Jeane Kirkpatrick taught me a rule she learned from one of her professors, the political scientist Harold Lasswell: when designing a constitution, imagine that your worst enemies are in power.

We tend to think of the U.S. as a bigger version of Japan or Germany, when it is really a more coherent version of the European Union—a group of states and regions bigger than most countries. In designing an industrial policy for a continental society with a third of a billion people, we would do well to follow the examples of 20th-century reformers who created regional institutions for economic regulation and development—the Progressive-Era Federal Reserve System, with its twelve regional banks, and the Farm Credit System, with its half-dozen territories, created during the New Deal. Even if most regional institutions are corrupt or incompetent, a few country-sized American regions might get it right.

Then there is the question of personnel. Sitaraman writes that “organizing government for industrial policy” will require “adopting strict ethics rules to eliminate financial conflicts of interest, restricting lobbyists’ practices like contingency fees and foreign lobbying, closing the revolving door through bans on lobbying and employment in related sectors, and boosting transparency in the rulemaking process.”

These are all sensible reforms. But you go to war with the army you have, not the army you want. If industrial policy in the U.S. can only be carried out by the equivalent of Japanese Ministry of Finance technocrats or powerful French enarques, instead of our existing cadres of revolving-door in-and-outers and career civil servants, then we are in for a long wait.

I am more optimistic. In the 20th century, Congress repeatedly rejected proposals to create a powerful American high civil service. Nevertheless, the U.S. managed to mobilize industry to win two world wars and a cold war and to launch the nuclear, space and computer revolutions. Even with our flawed political and personnel systems, we might be able to get much of the industrial policy we want.