Did someone just say “Industrial Policy?”

A few weeks ago, we were trying to decode voters’ messages in the US and UK. Donald Trump, Bernie Sanders, Hillary Clinton, and millions of voters said we have lost trust in the way we’ve managed globalization. Brexit and the US presidential campaigns broke the spell we had been under during 20 years of neoliberal free trade orthodoxy. Even before the election, growing public opposition had worn away support for TPP, the 12-country trade deal. TPP failed because our free trade approach to globalization is exhausted

Decades of neoliberal market fundamentalism had conditioned us to accept millions of lost jobs, reduced bargaining power for workers, deindustrialization, stagnant wages, and unchecked climate change.

We are ready for a new approach that would balance trade and share the gains from globalization. Labor, environment, and other civil society groups have specific goals – deal with inequality, climate change, access to medicine, food security, internet freedom, and other non-economic issues at home and abroad.

Donald Trump openly endorses industrial policy. To me, “industrial policy” means intervening in markets to prevent or correct market failures. For decades, it was the policy that could not be named in Washington DC. Industrial policy is the conceptual opposite of neoliberal free market – free trade orthodoxy.

Industrial policies can be good or bad. Good ones can serve legitimate national interests and bad ones cause grief – just like good or bad policies for health care, banking, infrastructure, and education. Good industrial policies can help us manage globalization better.

• China, Japan, Korea, Germany and other countries have very effective well-designed industrial policies that serve their national interests. Japan, Korea and other countries made extraordinary progress from third-world to first-world status using industrial policies. America industrialized under Alexander Hamilton’s industrial policies. The New Deal was a collection of industrial policies.

• Buy American is an industrial policy that makes perfect sense to workers and voters. California buys steel to build the Bay Bridge. Why would we buy unfairly subsidized steel from China and accept the headaches from bad welds and cost overruns?

• Dean Baker describes a great way to lower prescription costs. We could fund and manage clinical trials as a public program. In addition, we could retain more public control over how new drug patents are commercialized. This industrial policy would bring drugs to the market based on public health criteria, rather than profit. Taxpayers pay directly for prescriptions through Medicare, Medicaid, and the Veterans Administration. We could pay ourselves back in lower drug costs, and focus on medical outcomes, not marketing goals.

• Publicly funded R&D is an industrial policy. We should modify current practice, to retain greater control of licensing for publicly-owned patents. We can specify a nominal licensing fee when a patent is commercialized in the US, and a higher fee if production goes offshore.

• Large companies can entice states into bidding wars for a new facility. Instead of bidding wars, states could establish economic development funds. Washington State and California have billion-dollar initiatives targeted at biotech. Washington’s fund solicits bids from all companies for a portion of the development fund. Each bid is scored according to measures of public good, such as the number of family-wage jobs with benefits, or investment in plant and equipment. We could also require a commitment (subject to clawbacks) to maintain employment for a minimum period of time. This industrial policy reverses the power relationship between states and companies. Now, states have a scarce resource – access to the fund – and companies bid against each other for the scarce public resource. 

• Companies should state in their annual tax filings how many workers they employ in the US and how many in other countries.

• We can create a global institution for labor and environment. Investors and global companies already have 3 global financial institutions – the World Trade Organization, International Monetary Fund, and World Bank. Civil society needs its own global institution with powers and authority comparable to the WTO, IMF, and World Bank.

• The Sierra Club proposed a border adjustment mechanism for future trade deals. Countries have made environmental commitments under previous trade deals. If they meet those obligations, products from their country can have access to our markets with low tariffs. Countries who fail to meet their obligations will see a border adjustment on all their products. This gives them a market incentive to meet their commitments.

• That idea can be generalized. Countries have also made commitments about improving labor rights, and controlling human trafficking. A similar border adjustment can apply when countries fall short of their commitments for labor rights and human trafficking. The same mechanism can enforce commitments to investors, such as currency manipulation, unfair subsidies, and unjust expropriation of property.

• The Export-Import Bank is a remnant of the New Deal. The Export-Import Bank guarantees loans for exports. This is an industrial policy because of a requirement for 85% domestic content. The product must be made, mostly, in the US.

• Many states subsidize residential solar panels, electric vehicles or wind generators, with special preferences for locally produced materials. This is an obvious industrial strategy – one of many required to control climate change.

These and many other industrial policies would be in direct conflict with neoliberal free trade orthodoxy. It makes no sense to allow free trade orthodoxy to block policies that express our values as a country. Effective well-designed industrial policies should drive our trade policy, not the other way around.

Said differently, we cannot tweak TPP. We need to rethink our approach to globalization.

Design criteria for our industrial policies should include balanced trade, keeping capital investment flows roughly in balance, and most importantly balancing public interests with investor interests.

Effective industrial policies drive upward spirals in our domestic manufacturing capacity, employment in family-wage jobs, labor rights, human rights, and environmental protections at home and abroad. We can choose policies that share the gains of globalization more broadly. Public policies are necessary to address the two biggest market failures in human history – inequality and climate change.

We can pursue our legitimate national interests, raise standards around the world, and build a sustainable global system that works for everyone.

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