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Existential challenges from China, climate and more demand new US industrial policy | Robert Reich

America is about to revive an idea that was left for dead decades ago. It’s called industrial policy and it’s at the heart of Joe Biden’s plans to restructure the US economy.


When industrial policy was last debated, in the 1980s, critics recoiled from government “picking winners”. But times have changed. Devastating climate change, a deadly pandemic and the rise of China as a technological powerhouse require an active government pushing the private sector to achieve public purposes.

The dirty little secret is that the US already has an industrial policy, but one that’s focused on pumping up profits with industry-specific subsidies, tax loopholes and credits, bailouts and tariffs. The practical choice isn’t whether to have an industrial policy but whether it meets society’s needs or those of politically powerful industries.

Consider energy. The fossil fuel industry has accumulated “billions of dollars in subsidies, loopholes and special foreign tax credits”, in Biden’s words. He intends to eliminate these and shift to non-carbon energy by strengthening the nation’s electrical grid, creating a new “clean electricity standard” that will force utilities to end carbon emissions by 2035 and providing research support and tax credits for clean energy.

It’s a sensible 180-degree shift of industrial policy.


A proper industrial policy requires that industries receiving public benefits act in the public interest

The old industrial policy for the automobile industry consisted largely of bailouts – of Chrysler in 1979 and General Motors and Chrysler in 2008.

Biden intends to shift away from gas-powered cars entirely and invest $174bn in companies making electric vehicles. He’ll also create 500,000 new charging stations.

This also makes sense. Notwithstanding the success of Tesla, which received $2.44bn in government subsidies before becoming profitable, the switch to electric vehicles still needs pump priming.

Internet service providers have been subsidized by the states and the federal government and federal regulators have allowed them to consolidate into a few giants. But they’ve dragged their feet on upgrading copper networks with fiber, some 30 million Americans still lack access to high-speed broadband, and the US has among the world’s highest prices for internet service.

Biden intends to invest $100bn to extend high-speed broadband coverage. He also threatens to “hold providers accountable” for their sky-high prices – suggesting either price controls or antitrust enforcement.

I hope he follows through. A proper industrial policy requires that industries receiving public benefits act in the public interest.

The pharmaceutical industry exemplifies the old industrial policy at its worst. Big pharma’s basic research has been subsidized through the National Institutes of Health. Medicare, Medicaid and the Affordable Care Act bankroll much of its production costs. The industry has barred Americans from buying drugs from abroad. Yet Americans pay among the highest drug prices in the world.

Biden intends to invest an additional $30bn to reduce the risk of future pandemics – replenishing the national stockpile of vaccines and therapeutics, accelerating the timeline for drug development and boosting domestic production of pharmaceutical ingredients currently made overseas.

That’s a good start but he must insist on a more basic and long-overdue quid pro quo from big pharma: allow government to use its bargaining power to restrain drug prices.

A case in point: the US government paid in advance for hundreds of millions of doses of multiple Covid-19 vaccines. The appropriate quid pro quo here is to temporarily waive patents so manufacturers around the world can quickly ramp up. Americans can’t be safe until most of the rest of the world is inoculated.

Some of Biden’s emerging industrial policy is coming in response to China. Last week’s annual intelligence report from the Office of the Director of National Intelligence warns that Beijing threatens American leadership in an array of emerging technologies.

Expect more subsidies for supercomputers, advanced semiconductors, artificial intelligence and other technologies linked to national security. These are likely to be embedded in Biden’s whopping $715bn defense budget – larger even than Trump’s last defense budget.

Here again, it’s old industrial policy versus new. The new should focus on cutting-edge breakthroughs and not be frittered away on pointless projects like the F35 fighter jet. And it should meet human needs rather than add to an overstuffed arsenal.

Biden’s restructuring of the American economy is necessary. America’s old industrial policy was stifling innovation and gouging taxpayers and consumers. The challenges ahead demand a very different economy.

But Biden’s new industrial policy must avoid capture by the industries that dominated the old. He needs to be clear about its aims and the expected response from the private sector, and to reframe the debate so it’s not whether government should “pick winners” but what kind industrial policy will help the US and much of the world win.

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