Industrial policy: what it is, how Biden's doing it, and how it could be done better
Mar 8, 2024
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Exploring industrial policy under Biden's administration, including critiques and challenges. Discussing the establishment of a green bank and government intervention in addressing global challenges. Emphasizing the importance of balancing coalition satisfaction and speed in policy implementation.
Industrial policy involves government shaping economy by boosting specific industries like clean energy and semiconductors.
Critics debate on balancing public and private sector involvement in industrial policy for effective economic development.
Implementing industrial policy requires managing trade-offs between economic growth, social objectives, and stakeholder demands.
Deep dives
Industrial Policy and Economic Development
Industrial policy, which involves government actions and investments to shape the economy, is a significant shift in focus from neoliberalism to actively determine the growth of industries and job creation. The Biden administration is leading this shift, emphasizing the need for government intervention to influence industry composition. This approach aims to boost certain industries while phasing out others, focusing on sectors like clean energy and semiconductors. By aligning government policy with the intention to modify industry compositions, industrial policy becomes a key tool in economic development.
Challenges and Critiques of Industrial Policy
Critics raise concerns about the effectiveness of industrial policy, questioning government's ability to pick winners and its vulnerability to industry capture. There are debates on the role of public versus private sector involvement, with suggestions varying from more government-led efforts to promoting private investment. The balance between public investment and private initiatives is crucial, and challenges arise from aligning varied goals such as clean energy promotion, job creation, and economic growth.
Trade-offs and Coalition Building in Industrial Policy
Industrial policy faces dilemmas such as the trade-off between promoting specific industries and securing broader social and political objectives. The integration of various requirements, like labor standards, sourcing conditions, and community impact considerations, complicates policy implementation. Balancing the demands of different stakeholders and maintaining political support becomes a critical aspect of industrial policy design, highlighting the need for effective coalition building and trade-off management.
Policy Implementation Challenges and Balance
The implementation of industrial policy involves navigating complex trade-offs between economic development goals and social considerations. Criticisms often revolve around the perceived 'everything bagel' approach, where multiple requirements are attached to policy initiatives. Finding the right balance between promoting industries, ensuring equity, and managing political coalitions presents ongoing challenges. Striking the right equilibrium between private sector investment, public incentives, and social goals is essential for successful industrial policy outcomes.
Importance of Government Capacity in Industrial Policy
Investing in government capacity in states and counties leads to more efficient processing and implementation of projects. Devolution of industrial policy expertise post-New Deal resulted in varying state capacities, impacting economic development agencies differently. The need for increased investment in government capacity, especially for pursuing multiple policy goals concurrently, is emphasized.
Role of Public Financial Institutions in Industrial Policy
Establishing public financial institutions like the Reconstruction Finance Corporation can facilitate funding for strategic industries, support production shifts, and ensure public accountability in resource allocation. Public banks can offer patient capital with modest returns, fostering risk-taking and addressing market deficiencies. Examples from Europe and Norway highlight the effectiveness of public financing tools in advancing industrial and developmental priorities.
In this episode, we go deep on industrial policy with Todd Tucker of the Roosevelt Institute. We discuss what it is, why it’s needed, what Biden’s particular version of it looks like, and how it could evolve if he wins a second term.
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