Source: Blog – Alliance for American Manufacturing
“It is time to end the stale argument about free markets versus industrial policy. We need both: market-based policy for most of the economy, and strategic industrial policy for select sectors,” said Robert Atkinson, president of the Information Technology and Innovation Foundation. Getty Images
While market-based systems work for a lot of the economy, critical sectors require a bit more focus and coordination.
One of the tough lessons the United States has (repeatedly) learned over the past two years is what happens when you allow market forces – and only market forces — to drive the development of critical sectors.
Whether it was basic PPE like face masks or complex inputs like semiconductors, the United States faced shortages of essential goods – during a crisis, no less – in part because policy was not in place to ensure the stability of these critical items. That, however, appears to be changing.
On Tuesday, the Information Technology and Innovation Foundation (ITIF) hosted a digital event looking at how a national strategic industrial policy can strengthen America’s ability to manufacture the critical supplies it needs while also competing globally against nations like China. The online discussion featured remarks from Biden administration officials, as well as industry experts and labor leaders.
Sree Ramaswamy, a senior policy advisor at the Commerce Department, noted that industrial policy isn’t about “picking winners and losers,” but rather about “providing a guidance system to coordinate these investments” in critical industries.
“Strategic industrial policy is something we’re thinking about in the White House; fundamentally, when it comes to actual policy implementation, there aren’t really those coordinating structures in the U.S.,” Ramaswamy said. “By the time programs are passed and funded, focus switches to ‘how quick can we get money out the door?’ We need strategic patience and now try to figure out, ‘How do I coordinate this program with another program?’”
In his research, Ramaswany found that over the last decade, federal incentives to support manufacturing stood at about $85 billion across 15,000 programs. That might sound like a lot, but “when you have that level of fragmentation it is hard to send a signal, and hard for industry to respond.”
The status quo saps our potential, Ramaswany said. “Across the board, we’re getting a suboptimal outcome,” he said.
Ramaswany argued for a nerve center in the administration, a “nexus” where policymakers and leaders could find the “home for this thing”, and mentioned the Critical Supply Chain Resiliency Program, a pending piece of legislation that will help with mapping supply chains in real times.
“We often hear the fact that American workers don’t want to work in manufacturing,” Ramaswany said. “I think that’s B.S.”
Michael Brown, director of the Defense Innovation Unit (DIU) at the Defense Department, outlined the consequences that stem from a lack of coordination.
“If you want illustrations of where we needed strategic industrial policy, look at what has happened in 5G or drones,” Brown said, pointing to two industries that China has largely captured.
“We do need the kind of coordination with a national agenda… because if China displaces us, our standard of living is going down,” he added.
Robert D. Atkinson, ITIF’s president, moderated Tuesday’s event. Atkinson recently authored the report Computer Chips vs. Potato Chips: The Case for a U.S Industry Policy, which argues that it is time for the United States to put in place a “policy specifically tailored to boost production and innovation capacity in strategically important industries – especially technologically sophisticated ones with dual-use capabilities.”
In his remarks, Atkinson noted the country is “at an inflection point” when it comes to industrial policy.
“It is time to end the stale argument about free markets versus industrial policy,” he said. “We need both: market-based policy for most of the economy, and strategic industrial policy for select sectors.”
After the Cold War, there was an opportunity to re-order the way countries traded with one another. Each country was supposed to specialize in areas in which they were most competitive.
“In this idealized world,” Atkinson said, “goods, services, even workers would flow across the world in ‘just in time’ production systems, producing prosperity for everyone.”
But as the supply chain shortages of the last year have showed us – not to mention the lack of supplies needed to respond to the COVID-19 pandemic – those old production systems aren’t working.
“I would argue the single most important lesson from that is the notion that we can rely solely on market forces to provide needed production is no longer the case,” Atkinson said.
Atkinson categorized the pressing problem for the United States as twofold. First, other nations have strategic industry policies to win (e.g. If one country gets a semiconductor fabrication, another country misses out). Secondly, the only way that market forces alone could align with the U.S. if the interests of the state and business were the same, Atkinson said.
Atkinson suggested an alternative of two separate co-existing systems: one tailored toward the free market for traded sectors and another more focused one for strategic critical sectors.
Describing his analysis as a “hard pill to swallow for lots of folks,” Atkinson said the current situation could be akin to 1946, when Congress passed the Full Employment Act which, among other provisions, created new statistics to measure the economy. Atkinson also cited the U.S. government’s outreach to industry leaders during the Second World War, the Dollar-A-Year Men, to help harness industry capacity and provide a blueprint for business and governmental cooperation in key sectors that cannot be outsourced.
Atkinson urged the passage of the United States Innovation and Competition Act of 2021, more commonly known as the China Competitiveness Bill.
“The fundamental, most important concept here is the externalities from private investment are not taken into account, nor should they be… their job is to make a return for their shareholders… we as a society don’t encourage them to take into account externalities,” Atkinson said.
Brad Markella, executive director of the AFL-CIO Industrial Union Council, said any industrial strategy needs to be fluid and adaptable to changing circumstances to avoid “paralysis by analysis.”
And industrial policy must ensure that workers are at the table, especially since the labor movement has contributed mightily to manufacturing, Markella added. For example, the United Autoworkers (UAW) came up with a paper that eventually led to the creation of the Manufacturing Extension Partnership.
“The UAW almost 20 years ago sort of set the field on what is our industrial policy on autos, around fuel economy standards and investing in manufacturing,” Markella added. “The UAW’s electric E/V paper motivated President Biden’s personal approach to industrial policy.”
Industrial policy also must take steps to protect U.S. intellectual property, Markella noted.
“We have seen so much IP walk off. I’ve told this to my friends at the Department of Energy; they think SunShot was a great success because we brought the cost of solar down 80%. To me, we hit a home run, we touched third base and then we went in the dugout,” Markella said.
Erica Fuchs, a professor of engineering and public policy at Carnegie Mellon University, emphasized that the United States has the tools to combat the problems we face, but needs to rethink how to equip industry for the future.
“We lack real time situational awareness,” Fuchs said, adding that “there is sociological research showing U.S. companies don’t talk to each other like they do in Europe.”
“I believe strongly… to come to the correct solutions in terms of both the real-time situational awareness, the innovations that transform our competitive situation, and the policy packages that are going to act as solutions… we need to think about capabilities in making these decisions as a triangle,” Fuchs said. “And that triangle has three points: you need to have deep technological expertise at the table… the second is that you need modern, data analytic capabilities… and the third is that I do believe we need our social scientists at the table.”
“We had a tremendous number of small and medium enterprises that responded pretty quickly [to the coronavirus] so when we think about our capacity, we want to think about it in a dynamic form and not statically,” Fuchs added.
If you would like to read Atkinson’s report, you can do so here. To view the webinar in its entirety, click here.
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