What Industrial Policy Should Be

America now has a full-blown industrial policy. But it’s an odd one — a combination of lemon socialism and taxpayer-financed regulation.

Consider GM and Chysler. To what purpose are our taxpayer dollars being put as we bail them out? Apparently only to help them survive, even as pale shadows of their former selves. Steve Rattner, the Administration’s auto expert, explained last month that the government was “making an investment decision. We’re not running these auto companies. We are helping them restructure and reposition themselves for the future.” Which raises the question: Why bother at all, if a huge portion of their employees and those of their dealers and suppliers are losing their jobs?

This week the Administration announced new fuel economy targets. But auto buyers aren’t particularly interested in fuel efficiency now that gas prices are low. So how are GM and Chrysler to pay the costs of achieving the new targets? Tucked into the latest version of climate legislation unveiled this week by the House Energy and Commerce Committee is a provision that doubles to $50 billion loans to help auto makers comply.

Industrial policy ought to fill in where the market fails — providing basic research to help spur new technologies and industries, reducing the negative side-effects of the market (such as carbon pollution), and easing the adjustment of workers and communities out of older industries that are shrinking toward new ones. Ideally, these three parts of industrial policy would be synchronized so the new technologies and industries address negative side-effects while also creating opportunities for communities and workers to gain new employment.
Much of the industrial Midwest desperately needs new technologies and industries to take the place of the shrinking U.S. auto industry, and workers who have been (or are about to be) laid off need help transitioning to those new jobs. Could chunks of the old auto industry be adapted to producing high-speed rail or, more generally, highly-efficient people-moving systems of the future or, even more generally, green technologies that support such systems? Could some of the billions now slated to fund new non-carbon based energy sources be targeted to this?

I don’t know the answers but I worry no one is asking these questions. Bailing out the auto companies while forcing them to lay off tens of thousands of their workers, imposing higher fuel-economy targets on them, and lending them billions more to meet those new targets seems oddly unrelated to the large structural transformation the economy must go through. We need a broader and more imaginative approach to industrial policy — one that integrates all the different ways government influences industry, and achieves overarching public goals.

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