Industrial Policy Dreams Perpetually Deferred

ichard Reinsch: Welcome to Liberty Law Talk. Today we’re with Scott Lincicome senior fellow in economic studies at the Cato Institute about industrial policy, its prospects, what it means, and what its consequences would be if we had something like that fully implemented. Scott, as I mentioned is at the Cato Institute in economic studies, he writes on international and domestic economic issues, including trade subsidies, industrial policy, global supply chains, all the things that are in the news, we’re discussing. Scott, glad to have you on the program.



Scott Lincicome: Thanks for having me. Good to be here.



Richard Reinsch: Thinking about industrial policy and I’ve read a lot of your work on it. What is industrial policy?



Scott Lincicome: Great question, because it’s funny to start there, but it’s really necessary because so often you hear, especially from industrial policy advocates it is anything and everything. It is what gave us the iPhone and COVID vaccines and everything in between, you name it. If it is a technological marble of any sort, you will hear that it was a result of industrial policy. The reality is as you and surprisingly, listeners might find out is far different. And that’s because if you look back at the history of industrial policy and we have a lot of it, in not just the United States, but around the world.



If you go back to Hamiltonian report on manufacturers, surely there was some industrial policy baked into that. The question is whether that actually first of all, was fully implemented. The history shows that it really wasn’t. But second, is, was that really effective? Did it actually achieve outcomes that were better than what the market would’ve done and that’s where I think, especially in that Hamiltonian high tariff, industrial intervention era of the 19th century, you really see that at least the scholarship on the issue says that, you know what, it really didn’t work as well as people will claim.



Experts tend to coalesce around a few really essential defining characteristics of what is industrial policy. First, you need a national strategy or a plan of some sort. This isn’t just government funding for basic research, for example, where, you give a bunch of smart people grants to do some research, and they might stumble upon some amazing thing while they’re doing their work at some university. You need a national strategy and a plan to achieve some sort of objective. The next thing is you need to then pursue into that strategy.



You’re going to have a targeted microeconomic meaning company, industry, firm, specific stuff. Microeconomic policies, things like tariffs or subsidies or localization mandates or the rest. And those policies are going to be intended to achieve specific market beating commercial outcomes. Making that really simple, this isn’t like building a fighter jet, and it’s not just simply to try to achieve some objective that the market could achieve. It’s essentially saying, look, no, the market has failed, and in order to achieve our national strategy, we have to intervene in the market. We have to beat the market.



Because there is apparently this market failure. And then the last part is there has to be an element of nationalism in all of this. This is not just simply establishing a prize and saying anybody who can deliver an amazing technology to us gets the prize. We don’t care where you’re from. We don’t care how you do it. This is far different. This is really the government saying, we want this on national soil. We want it to use American workers, American manufacturing. That’s the only way you can qualify for any of these goodies that we just talked about.



Richard Reinsch: As I think about things that I hear when I’m out there regarding industrial policy something that frequently gets trotted out and seems to be received with nods by a lot of people in the room. What is said is the internet is the outcome of industrial policy. COVID vaccine strategy, Operation Warp Speed proves industrial policy. Is there ever a need for industrial policy? And is there ever an argument for it? And I think, so another thing you hear is Alexander Hamilton in the famous report are manufacturers. America itself from our founding, some would say is rooted in industrial policy, is comfortable with it.



Scott Lincicome: Yeah. And I think that, look, if you go back to Hamiltonian report on manufacturers, surely there was some industrial policy baked into that. The question is whether that actually first of all, was fully implemented. The history shows that it really wasn’t. But second, is, was that really effective? Did it actually achieve outcomes that were better than what the market would’ve done and that’s where I think, especially in that Hamiltonian high tariff, industrial intervention era of the 19th century, you really see that at least the scholarship on the issue says that, you...

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