Industrial policy, which is based on the notion that government can and should play an important role in improving quality of life by encouraging certain economic policies, is a highly contentious topic in today's American political and economic landscape.
Conservatives say, let the free market reign without any government intervention. But intervention, liberals say, is key. What's really needed, according the authors of a new book on America's industrial policy, is a complete "rethink."
In "Industrial Policy in America: Breaking the Taboo" (Edward Elgar, April 2013), Stuart O. Schweitzer, a professor of health services at UCLA's Fielding School of Public Health, and Marco R. Di Tommaso, a professor of economics at Italy's University of Ferrara, call for a complete reexamination of the nation's approach to industrial policy.
The book comes at a time when disagreements between political and economic opponents have become so bad, the authors note, that the subject of industrial policy has almost become — as the book's title suggests — taboo to discuss. Schweitzer and Di Tommaso hope their fresh analysis will contribute to breaking the current deadlock and help the country move forward and stay competitive in the 21st-century global economy.
Defining industrial policy
A nation's industrial policy, Schweitzer and Di Tommaso say, begins with a set of actions that government can undertake to promote its societal goals, such as job creation, energy independence or improvements in national competiveness. Efforts can target particular industries, and the government then establishes policies that will help achieve these goals.
The controversy over industrial policy, the authors write, is based on differing definitions of the term and, more importantly, on differing philosophies of government, markets and society.
"This debate about what industrial policy is and what it should be is often ideological and politically charged," Schweitzer says. "That's why politicians often avoid the concept or call it by other names."
By whatever name it's called, industrial policy has played an important role in America's economic history from the beginning, Schweitzer and Di Tommaso point out. The ideas and policies of Founding Father Alexander Hamilton, the authors write, ultimately helped transform the United States from an agricultural economy into the world's most powerful industrial country. Even Ronald Reagan, long considered a champion of laissez-faire economics, engaged in policies that protected certain industries while using rhetoric that promoted unregulated markets and small government, they say.
Making both markets and government function better
Today, the authors write, America needs to rethink its traditionally antagonistic positions on industrial policy because it's clear that many markets do not work well. Important national goals are frustrated by factors like poor job growth, a lack of competitiveness, over-reliance on fossil fuels, obsolete infrastructure and a young, poorly prepared labor force. These problems affect Europe as well, they say.
The remedy for some of these market failures, Schweitzer and Di Tommaso write, is changing incentives. In other cases, all that is needed is better information for producers and consumers. "Industrial Policy in America" highlights a variety of situations in which markets fail or do not perform properly and explains why, in certain circumstances, government intervention is necessary.
"Sometimes government intervention is needed not to replace a failing market but to make markets work better," Schweitzer contends.
But, he says, it's clear that just as markets can fail, government intervention in markets can fail as well. The future of industrial policy, according to the authors, is about how to make both markets and governments better in their functioning. The real objective is to make better-market and better-government policies consistent with the goal of building a better society.
Thus, proper industrial policy should address the source of government failures, just as it does market failures. Better markets need better government, and better societies need better markets and better governments, the authors write.
"President Obama has been considerably more willing than his predecessors to use industrial policy tools to address national goals," Schweitzer says. "But the new presidential administration will need more support from Congress and public opinion to use economic and other tools to address national goals than we have seen in the past."
The timing is critical, the authors say, because of the ongoing economic crisis and the challenges coming from the new industrial powers around the globe.
"So it is time to break this taboo and discuss the nation's goals, targets and tools to develop a new, effective American industrial policy," says Schweitzer.
"The problems facing our economy will not be solved by a smaller government," the authors write. "We need a smart, efficient and effective government. We need an American government that is able to design and implement innovative policies that benefit the whole society."
"We encourage this debate," Schweitzer says. "And we hope this book will stimulate discussion and finally break this taboo."
For more information on "Industrial Policy in America," please visit youtube.com/industrialpolicyinus.
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