Industrial Policy ‘Done Right’ Won’t Fix What Ails the U.S.

By Veronique de Rugy.

"Senator Marco Rubio (R., Fla.) has a new essay over at National Affairs making the case for industrial policy “done right.” He also has a piece on the issue at the Washington Post. I’m happy to see a policy-maker talking about policy. We need more of that and less of the pointless confrontation that is politics these days.

That said, it won’t be a surprise to anyone that I have many issues with his case for industrial policy. They include the usual New Right tropes that the world we lived in before Trump came to power was a laissez-faire paradise with unfettered free trade and a zero-tolerance approach to government intervention.

My issue with the pieces also include the repeated blurring of the line between national-security and economic arguments offered as justifications for the government to restructure the economy to Rubio’s liking. Indeed, it’s one thing to say that, in a world that looks more dangerous by the day, we should invest in national security. It’s a whole other thing to use the national-security excuse to justify economic policies with the objective of putting people back to work. In fact, I assume that Rubio’s industrial policy, while arguably better than Biden’s plan, will achieve neither heightened security nor put more people back to work.

I will pass quickly over the senator’s recycling of debunked evidence that industrial policy works well. See for instance his reference to the Wells King and Dan Vaughn piece that asserts that the 1980s U.S. automotive protectionism — in the form of Japanese “voluntary export restraints” — was a tremendous success. It is frustrating to see a seasoned legislator, whom I’m sure is well read, ignore Scott Lincicome’s demonstration in these very pages of the silliness of King’s and Vaughn’s argument, the flimsiness of their data, and the unseriousness of their conclusion.

Instead, I want to focus on Rubio’s disappointing unwillingness to tackle the hard challenges confronting his position: Industrial policy can direct money toward particular goals or industries, but it won’t deliver on the job promises made and it will certainly not heal our culture and communities.

Ultimately, that’s the reason why the senator wants to implement industrial policy. He sees it as a remedy to his claim, “The collapse of American manufacturing correlates with falling employment and societal decay in rural Appalachia and downtown Baltimore alike.” When he talks about the collapse of manufacturing, he is most likely talking about the collapse of manufacturing employment, because as Colin Grabow shows here, manufacturing is doing well. And when he talks about falling employment, I assume he means men who have fallen out of the labor force, because a 3.9 percent unemployment rate means that most people who want a job can to get a job. Rubio adds, “Conservative industrial policy could correlate with the inverse, breathing new life — and freedom — into a divided and downcast nation.”

Basically, the senator thinks that conservative industrial policy, as opposed to what President Biden is doing, will create a manufacturing boom that will trigger a manufacturing employment boom that will put men back to work in fulfilling and well-paying jobs.

I do not deny that many men have given up on work and that it is a problem. (They have, and it is.) I certainly don’t disagree that the best way to achieve the American dream is through work. I do not dispute either that there is a decline in manufacturing jobs. (There has been.) Manufacturing employment as a share of total employment peaked in the U.S. 80 years ago, in January 1944. And this trend, which is not unique to the U.S., is a well-documented product of innovation.

What I question is the idea that industrial policy “done right” will reverse these trends.

First, even if his version of industrial policy — which he claims will be different from the Biden version — were to produce a manufacturing boom, it wouldn’t produce a boom in manufacturing employment precisely because modern manufacturing relies heavily on automation. Let me repeat this again: Industrial policy will not turn us back into a nation of factory workers, especially one that employs the workers that the senator is concerned about.

Then what’s the plan? Does he want to force factories to retool with 1950s technology so that the resulting lower worker productivity will require many more man-hours in manufacturing work? And does he realize that, if such an outcome were to occur, the lower productivity of manufacturing workers would dramatically drive down manufacturing wages? What would that do to his plan for well-paying jobs in manufacturing?

Second, industrial policy won’t address the causes of a growing group of working-age Americans, especially the ones without a college degree, detached from the labor market. These causes are fairly well understood today. As Nick Eberstadt writes in the 2020 winter issue of National Affairs, “The more relevant pieces of the puzzle are family structure, government-benefit dependence, and mass incarceration and feminization.”

I get that the senator wants to pretend that trade is the reason behind men’s detachment from the workforce, but he will fail to address these problems if protectionism and “government investments” are the avenue he pursues. Eberstadt, for instance, writes:

The tempo of workforce withdrawal appears to be almost completely unaffected by the tempo of national economic growth, which varied appreciably over this period. Even recessions — including the Great Recession — appear to have scarcely any impact on the trend. Likewise, the NAFTA agreement, China’s entry into the World Trade Organization, and other “disruptive” trade events with major implications for the demand for labor in America do not stand out in this chart. The striking steadiness of this exodus, year in and year out, is fundamentally inconsistent with a demand-side explanation for declining labor-force participation rates.

Trade is a scapegoat, and industrial policy (conservative or progressive) is a distraction from doing the hard work of reforming the government policies, such as Social Security Disability Insurance, that cause or exacerbate the decline in men’s labor-force participation. The senator acknowledges that regulation gets in the way of building domestic industry (so much for the theory that we have been living in a world of free-market fundamentalism). He is right. NEPA, housing, permitting, occupation-licensing regulations, labor regulations, and so much more are suffocating this country. Why not start there instead of embracing a policy that will add to the regulatory burden, won’t look much different that Biden’s industrial policy, and won’t address the problem?"