Free-Market "Industrial Policy"

What would a pro-free-market industrial policy look like? Not this.

I have a new piece up at Discourse asking, “What Would a Pro-Free-Market 'Industrial Policy' Look Like?”

A strong US manufacturing base is certainly important for national security. American dominance in the aerospace industry has obvious strategic benefits, and the pandemic reminded us that other kinds of manufacturing can be important, too. When we suddenly had to produce millions of KN95 masks to guard against an airborne infection, we regretted having to rely on China for their supply. Moreover, we should encourage growth in manufacturing for the same reason we encourage growth in general—to enjoy even greater wealth and progress and enjoy it sooner.

Yet advice for how to encourage manufacturing usually comes from advocates of “industrial policy”—a euphemism for “central planning”—whose main instruments are tariffs and subsidies that cost far more money per job than they create. Or it is the domain of grandstanding politicians who boast about illusory deals that produce more photo ops than finished goods. If we actually want more manufacturing, we have to look at the conditions required for it to grow from the bottom up, not from the top down.

Read the article to get the whole run-down.

Here’s my favorite point. The same people who talk about how they want more domestic manufacturing also want to restrict immigration. But “who do you think was working in all those old factories from the heyday of American manufacturing?”

They included a big cohort of first- and second-generation immigrants. My grandfather, who worked a manufacturing job in the 1940s and ’50s—the classic era of American manufacturing dominance—was also the first in his Polish immigrant family to be born in the United States. His counterpart today is most likely in a family from Latin America or Asia instead of Eastern Europe.

Similarly, I make a counter-intuitive argument about how trade, instead of destroying domestic manufacturing, is necessary for it.

At the height of its dominance, [US manufacturing] was always connected to a global web of suppliers and parts-makers. Leonard Read’s classic primer on economics, “I, Pencil”—written in 1958—describes how the production of a humble pencil depended on parts and materials gathered from Italy to Indonesia. If that’s what made American industry great the first time around, why not embrace it now?

As the image at the top of this post indicates, I did not neglect to mention the Jones Act, a perfect cautionary tale about the destructive effects of protectionism.

Among the other issues I discuss, there’s one more I want to single out: the importance of energy.

Where I live in Central Virginia, Amazon recently announced plans to build two massive data centers. One of them will be built right next door to the North Anna Nuclear Power Station. You get the idea: The electrons will come fresh and piping hot out of the reactor and straight into the data center. Like the servers for a data center, most manufacturing operations are hungry for energy. But North Anna’s Units 1 and 2 went online in 1978 and 1980—more than four decades ago. Units 3 and 4 were planned but never built. In the entire United States, only two new nuclear power plants have come online in the last 30 years. How many factories might have been built next door to the nuclear power plants that were killed in their planning stages by regulators and activists?

As a writer, I am particularly proud of that image of electrons coming “fresh and piping hot out of the reactor.” And yes, Mr. Wakeland, I know this is not literally how it works.

Read the whole thing.

What Would a Pro-Free-Market 'Industrial Policy' Look Like?

One of the issues I mention in the article is how regulations and environmental activism prevent us from accessing not just energy but natural resources that are available in the US. I link in passing to controversies over vast new lithium deposits discovered in the US, providing us with a key material for modern high-capacity batteries.

I didn’t have space to go into this in more detail, but it’s worth checking out a well-written article at a Nevada news site that will give you a real flavor for why we can’t get things done in the US.