"Truly Impressive"
- Willy Shih,
Harvard Business School
Industrial policy means viewing the economy not as one single thing, which is usual way to view it when people talk about inflation being X% or economic growth being Y%, but as an intricate network of specific industries.
Key insight #1: Some industries are more valuable than others. They make the highest profits, pay the best wages, and drive the whole economy forward
The key is that nations are locked in a ruthless rivalry to possess the most valuable industries. These are not only those important for national security, like aircraft building, but those that generate the highest profits and the largest quantity of good jobs.
Americans are not going to be well-paid if most people are stuck flipping burgers at McDonalds. But if they are building electric cars or other sophisticated manufactured goods, they have a shot. But that means we need such industries to be thriving in the US right now.
Most are not.
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This book is the first comprehensive examination of industrial policy in 35 years.
Nations are locked in a rivalry to host the most valuable economic activities and industries. These are critical for national security, generate the highest profits, and create the best-paying jobs.
But for nearly half a century, the consensus has been that neoliberal, noninterventionist policies are the most effective way for any nation to succeed in these industries, including the U.S.
But it has not been working out that way. Such industries are not thriving in the U.S., but declining. Manufacturing productivity is falling (link) and the percentage of goods consumed in the US that is made here has reached an all-time low (link).
Why did this happen? Many reasons, but a few stand out:
An overvalued dollar caused by unconstrained international capital flows produced huge trade deficits. These deindustrialized America by encouraging excessive imports and harming America's export competitiveness.
Paralyzed by free-trade ideology, Washington acquiesced to the predatory mercantilism of foreign nations - both the "hard" mercantilism of nations like China and the "soft" mercantilism of Germany and others.
Foreign nations understood that pure science doesn't turn into saleable technologies on its own, and proactively supported technology development. America didn't, despite its own previous successes developing industries such as aviation and the Internet by such means.
Foreign nations made policy based on the idea that, contrary to mainstream academic economics, it matters what industries a nation has. "Computer chips = potato chips" thinking ignores fundamental differences.
Ironically, America used to understand all the policies it has since lost touch with. Contrary to myth, pre-WWII America was, in modern language, a developmental state. The U.S. only abandoned this knowledge, for political rather than economic reasons, during the Cold War.
This book examines these realities in terms of not only the underlying theory, but with histories, case-studies, and narratives. These cover nations, industries, technologies, and key people. The industries include steel, ships, cars, aircraft, computers, oil, rockets, robots, and vaccines, to name just a few.
This book discusses everything from the economics of the Italian Renaissance to the quantum computers of the Defense Advanced Research Projects Agency. It offers new interpretations of many familiar events in American history, right down to Obama, Biden, and Trump.
Industrial policy is neither liberal nor conservative, and this book is scrupulously bipartisan. This is why it has won endorsements from leading elected officials of both parties. It is written with reform of American policy in mind, but its lessons are relevant to all developed nations. It is written to be accessible, but to a rigorous scholarly standard.
Both Trump (with tariffs) and Biden (with the CHIPS Act) took steps in the direction of proactive industrial policy. These moves were a success, but America still needs to go further. If it does, this book will be an excellent guide to understanding how much of the economic agenda of the next 30 years will unfold, what will work, what won't, and why.
This book is written to a rigorous scholarly standard, but in language accessible to any concerned citizen.
THE AUTHORS
Marc Fasteau
is a vice-chair of the Coalition for a Prosperous America. Before founding an insurance company acquired by Progressive, he was a partner at Dillon Read & Co., a New York investment bank, and previously a congressional economic staffer. He is a graduate of Harvard College and Harvard Law School, where he was on the Law Review. He lives in New York City. His personal website is here.
Ian Fletcher
is on CPA’s Advisory Board. He is the author of Free Trade Doesn’t Work and coauthor of The Conservative Case against Free Trade. He has been senior economist at the Coalition, a research fellow at the US Business and Industry Council, an economist in private practice, and an IT consultant. He was educated at Columbia University and the University of Chicago. He lives in San Francisco. His personal website is here.
