Will Barack Obama Commit Industrial Policy?
Barack Obama may soon find that he is committing a big sin against one of the major premises of the reigning ideology. As part of his plan to restructure the auto industry, rebuild infrastructure, and create new green industries and jobs, he will be committing industrial policy. And this will create a head-on collision with one of the cherished dogmas of market fundamentalism -- "free trade."
This clash is long overdue. For several decades, American elites of both parties have been preaching the same gospel of free trade. Supposedly, if we just leave markets alone, different countries will produce and export what they naturally do best, and import products at which their partners excel. In the tidy and oversimplified textbook world, there is no room for questions about pollution, labor standards, product safety, financial engineering, or industrial policy.
But the real world doesn't work like the Econ. 101 fable. In much of the rest of the world, governments help their industries develop.
However, in the hierarchy of America's diplomatic priorities, countries like China that subsidize industries (and violate human rights) get a free pass. Other nations like Japan, that basically closed their borders to most imports for several decades while they became industrial powerhouses, got a seal of approval, too. Supposedly, what we lose in jobs and industries, we make up in cheap imports.
While other nations care about what they produce, the United States disdains having industrial policies, in order to set a good example. Indeed, we have been the principal architect of the World Trade Organization, which discourages government involvement in economic development as an illicit thumb on the free-trade scale.
Now, with the crash of 2008, it is clear that the US economy was built on a financial mirage. Our reliance on asset bubbles - inflated stock and real estate prices - disguised the fact that we were not paying our way. Much of our prosperity was simply borrowed.
Having let so many industries and jobs just go offshore, we don't make enough to pay for our imports. Instead, we have been relying on loans from foreign central banks to finance our trade imbalance.
Looking at this economic calamity, President-elect Obama has proposed several sensible policies. He wants the U.S. auto industry to reinvent itself, with government aid and government standards. He wants to incubate other domestic industries around the goal of clean energy. And he wants to spend serious money on all of this, to help avoid a depression. The only historical counterpart is the vast industrial mobilization of World War II, which finally cured the Great Depression.
But these ideas about government involvement in the economy violate the sacred dogma of free trade. If the Obama administration is serious about reviving American manufacturing industry, it is only a matter of time before a foreign government hauls the U.S. before the World Trade Organization and charges us with the crime of industrial policy.
To quote our beloved leader George W. Bush in a different context, bring it on. The current version of the W.T.O., designed by and for US multinational corporations to make it easier to outsource jobs and production, has not served the national interest. It is indeed time to use industrial policy to rebuild long neglected domestic industries; and if something has to give, let it be the W.T.O.
As a mark of the total intellectual muddle in how policymakers have thought about these issues, the fact is that we have several implicit industrial policies. For instance, American commercial leadership in aerospace is no naturally occurring phenomenon. It reflects trillions of dollars of subsidy from the Pentagon and from NASA. Likewise, U.S. dominance in pharmaceuticals is the result of government subsidy of basic research, favorable patent treatment, and the fact that the American consumer of prescription drugs is made to overpay, giving the industry exorbitant profits to plow back into research. Throwing $700 billion at America's wounded banks is also an industrial policy
So if we can have implicit industrial policies for these industries, why not explicit policies to rebuild our auto industry, our steel industry, our machine tool industry, and the industries of the next century such as green energy and high-speed rail? And why not devise some clear standards for which industries deserve help, and why, and what they owe America in return?
The new administration is already a bit schizophrenic on the subject. On the one hand, President-elect Obama has been saying bold things about building the industries of the future. On the other hand, he just appointed as America's top trade official Dallas Mayor Ron Kirk, a man with no serious diplomatic experience and one whose main claim to fame on the trade issue is that he has been a big booster of NAFTA, a badly flawed deal that Obama has pledged to reopen.
Kirk's appointment was meant to signal that Obama will not challenge the current orthodoxy on trade policy. It was cheered by the U.S. business establishment. What is truly bizarre is that Obama's reported first choice for the job was California Congressman Xavier Becerra, a critic of NAFTA and other recent trade deals. Kirk will also vehemently disagree on trade and industry with Obama's new labor secretary-designate, Rep. Hilda Solis, another NAFTA critic.
Maybe, like Lincoln, Obama has the genius to fuse this "team of rivals" into an effective administration; perhaps he will listen to the divergent advice and forge the best course. When the historian Doris Kearns Goodwin coined that phrase to describe Lincoln's manner of governing, she was referring to the fact that Lincoln literally brought into his cabinet men who had been Lincoln's rivals for the Republican presidential nomination in 1860. These were people of real stature and of fierce differences, representing a party that was badly fractured on the key issues of how to save the union and whether to free the slaves.
Obama has prided himself building bridges and transcending ideology. We are now beginning to see what that means in practice--a cabinet that represents people of thoroughly contradictory views, with some members who are public figures of real consequence and others who are surprisingly weak. This pattern puts all the more pressure on Obama himself to create coherence out of the stew.
Despite these gestures of broad inclusion, there is no escaping the fact that Obama must quickly make some difficult decisions about which path to follow. And one path precludes another. He can't have both his industrial policies and his free trade.
Robert Kuttner's new bestselling book is "Obama's Challenge: America's Economic Policy and the Power of a Transformative Presidency."
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Much discussion is made regarding FREE TRADE. Many people would prefer the discussion to be about FAIR TRADE. The distinction between the two has been an ever widening gulf, and it is about time their was more made of this distinction and the spelling out of the distinction.
Exactly.. Free AND fair trade should be our the goal ! In 1 year- Kia shipped 660,000 cars to the US. But we were only allowed to ship 5000 there. Communist China sends us toxic food ( human & pet ) puts lead in our toys..yet we still do business with them. Bush / Cheney has given huge tax breaks to CO's that ship jobs overseas. We have been ' sold down the river. We paid billions to Cheney's Halliburton Co in Iraq.. some of that for work NEVER done ! Best 2 words to describe Bush Cheney's 8 years: GREED & DEREGULATION> which led to our economic crisis.
AMAZING how the unconscious mind works--when the Huff post bulletin came up on my e-mail just now, I read the headline as: "Will Obama Commit Industrial Suicide...
Kuttner is essentially correct - "essentially" because he offers arguments on points such as NAFTA that would benefit from further analysis and debate.
It's ridiculous to label these views "socialist
Free market capitalism was never a viable theory - not even in Mill's 18th century. Plain wisdom dictates that free markets must be deformed - however minimally - so that they serve the national interest. As Kuttner correctly states, America has established and continues to follow several industrial policies which are all the more dangerous for not being recognized as industrial policies.
The policies produced by the last administration have been meant to produce a political and wealthy oligarchy, who shelters taxes, protects their wealth, and stays in power with obscene financial power built on the backs of everyone else. (This includes the middle class of the US, foreign nations, and the international poor. )They killed the electric car, they build Debai, they gave Wall Street the keys to the kingdom. We can no longer eat the fish in the sea,or the the industrialized food supply which is loaded with hormones, chemicals, and antibiotics. Our children are surrounded with plastics and metals that are ubiquitous in our environment that no one pays any attention to. The have fed us nothing but corn, that our bodies are rejecting. They have sold weapons internationally and to our citizens, spread like Johnny Appleseed, under the rubric of "right to bear arms." They have turned a blind eye to protecting and defending the Constitution of the United States, not to mention the people. The US has come to the edge of a cliff, owing to toxic get rich and stay rich schemes.
ENOUGH.
Stop... please... No one killed any electric cars, our food supply is the best in the history of man and people are living longer and healthier than ever before, with more choice than ever before.
The opportunity to be rich is what drives everything and what's really going on now is the system correcting itself.
You only finding Corn to eat at the local store?
Your - "They have turned a blind eye to protecting and defending the Constitution of the United States, not to mention the people." - Is just crazy... name one example please?
Have you noticed how difficult it is to avoid high-fructose corn syrup at the grocery store?
I have a hard time stomaching the references to the system "correcting" itself as if we are all sitting in a macro-economics class in our freshmen year. In theory, the system DOES correct itself, but at a high human cost. Clearly, that cost is unbearable for the average American. We need to regulate to account for human frailties such as greed, corruption, and gluttony.
Capitalism and geting rich is well and good. Always has been..alwa
Thats not the issue.The problem comes when it's done by taking advantage of hard working people and giving all the breaks to corporations & the rich. The middle class deserve a fair shake and they have not had that in a very long time. Just the opposite. Some day. Bush / Cheney / Rumsfeld may have to pay for what they have done to this country. Consider this: Condi Rice and Bush got a CIA report in August 2001 ( before 9 /11 ) -that said " Bin Laden determined to HIT INSIDE THE US ! " We were also told that Arab men ( In Fla ) were asking for flying lessons..b
Stop already... you just 'feel' something and decide its true? Only corn to eat, where do you shop? Who killed the electric car? GM is betting the company on the "Volt" that comes out 2011 (I think it's 2011).
The opportunity to be rich is what drives this and every economy...
Constituti
If you read the food labels, corn fructose is added inside everything from cereal, to breads, condiments, simply everything. Go to your pantry. The animals are fed corn, from farmed fish, to foul, to the cattle. The cattle are made acidotic because corn is inapporpriate for their systems, and they have to be fed antibiotics until slaughter. When farmed fish are fed corn they convert an omega 3 fatty acid chain into an omega 6 fatty acid chain, which converts a healthy food into an inflammatory one. (See cardiac disease and cancer) Now we have poisoned the wild fish with heavy metals in the ocean.( See mercury poisoning) If you think your food supply is trustorthy, you are simply in the dark..
The opportunity to get rich by spending down the health of our people, is not the right way to get rich. To poison in the oceans, the water tables land and food supply with toxic chemicals and antibiotics is not the proper way to get rich. To allow people to get rich by leaching plastics and metals into the bodies of our children is not acceptable. To taint the food and our homes with poison for money is not an acceptable tradeoff.
There are plenty of facts. Greed & deregulation has caused most of our economic crisis. Reagan started it with his ' Trickle down economics.
I'm sorry Wake-up, but I'm with Janelynne. I just spent the last hour and a half introducing my eleven-year-old son to our The Who, U2, and Bob Dylan CD's. "We Won't Be Fooled Again", "The Times They Are A' Changin' " and "Bullet in the Blue Sky" never seemed so timely to me. The American people need to see reality and take control once again. Janelynne echoes the sentiments of so many Americans. We have had ENOUGH of the corruption, neopitism, bigotry, arrogance, greed, ignorance, and intolorance of the noecons and their blind followers. We're going to change things for our children. I truly believe that Barack Obama is our agent of change and I'm with him 100%!
angie momma..You said a mouthfull.
Let's all rout ( sp ) for Obama to do well ! Thats the least we can do...regar
Yes Jane Lynne..Eno
Enough is right! Enough of you socialist!!!! Our economic and political system will work just fine if people will have the moral constitution and do the right thing. Do we want the government to control everything? If you do maybe Russia is the place for you. I personally don’t want help from the government and I don’t want the government in my business. Why is Madoff not in jail? While you are throwing stones at the Republicans you my want to really look at the facts and throw some at the Democrats when it come to what is going on with our economic situation. People did see the situation coming and tried to put stops in place …..they were stopped by Barney Frank and Chris Dodd. If you don’t believe it check it out there is film of Frank and other Democrates giving a hard time to the regulator that was saying there was a problem. There is plenty of blame to go around. Did you ever stop and wander why Chris Dodd wanted to give a percentage to the returnes from the bailout to ACORN? Halliburton is the only company in the world with the experience and size to the job that needed to be done in Iraq. Sen. Gramm’s wife made 900 K off of Enron. What about the 100 K Hillary made off of a $1,000.00 beef stock investment?
I like corn, alot. What's wrong with corn? I like all kinds of corn. Corn starch, corn flakes, corn syrup, corn bread, corn meal, corn on the cob.
Heavy metals occur naturally in the ocean. So, what's the problem with a little mercury now and then?
I like guns. If you try to take mine away I will use it to stop you.
Plastic is neat. It saves far more lives than it destroys.
Johnny Appleseed didn't ruin our economy, please leave him out of this.
Electric cars are slow, high maintenance, and they are horrible for the environment.
If you don't want your cows to be fed corn then buy them from a farmer who feeds them something else. You have limitless choices of where to buy your beef and where to have it butchered. I get mine from my wife's grandpa. His cows are yummy.
I get my fish from a little water hole that will remain undisclosed. It has the best catfish ever and I will not give out it's location so don't ask!
Why are your children surrounded by plastic? Do they have an immune deficiency? I will pray for your bubble children.
Good article. We are now in the 21st century and what worked in the 19th and 20th centuries may not work any longer. We are going to have to look at the world realistically and figure out some new approaches. This will not be easy but it must be done. Universal national health care must happen. CEO's need to cut their big salaries and perks. The factory worker deserves decent pay in order to have food, shelter, educate his or her children and have a decent old age. All of us are going to have to adjust and it won't be easy.
The falicy is that we have free markets. The danger is that socialists like Kuttner perpetuate this lie to gain support for their ideology of wealth-dis
We need some bailouts, and we need some businesses to fail as they would in a free market. The challenge for Obama will be to walk this razor's edge. I expect he will bail out too much - thereby over-meddling again - and we will have a bigger mess still to unravel at some point in our children's future.
Thanks to multi-national corporations, there's no such thing as "free markets", but multi-national races to the bottom for workers, and a growing threat to national security - US national security. Henry Ford II was correct when he replied, after being shown robots manufacturing automobiles and being told robots didn't get sick or drunk or go on strike, "They don't buy cars either."
Today's multi-nationals couldn't care less about American workers being unable to buy cars or other goods, not when there's a whole world to sell goods to produced by Asian and South American peons in sweatshops outsourced from US factories.
As for the threat to national security, consider the United States on December 7, 1941. After Pearl Harbor, the US was able to retaliate and ultimately win World War II because its factories, raw materials, and workers were located in the United States and Canada, not scattered all over the globe. Had the US then been in the same position as today, the US would have been helpless as a turtle on its back.
REagan deregulated banks as well as other business's. He also lowered the top rate from about 70 % to under 30 %. That was his trickle down economics.
First: 'free trade' is not free. Something Cobden (a British minister in the late 19th century) cobbled together to make sure the British corporations and business could take advantage of against economic lesser countries and businesses. Business has always, and always will, need governments to protect them against any lesser businesses and people. Second: Economics IS the problem. Economics is the study of money flow. Studying money flow is tantamount to studying fortune telling. Money is the real problem cos it gives value to everything when in effect no two people would give the same value to anything. Sooner or later (and I suspect later, when it might too late) we will realize we don't have to live in the world of money. The idea has been around for at least 4 centuries. Alas, we in the west never caught on becuase we were so engrossed in maintaining our privileged over the rest of the world and now they are catching on to our method and beating us at it.
In an honest world free markets would probably work but in ths dishonest wolrd it only works for those who steal pensions, grant themselves millions of dollars of bonus' while running once profitable companies into the ground. Forget college have your kids learn a useful trade like shoemaking
The debate morphed from a discussion of the merits of government direction of industry into a free trade debate - typical irrationality from the supposedly informed masses. As for the article, I believe that the author makes the case for the opposite of his position in his own article. He notes early in the article the lack of industrial policy in the U.S. versus other countries. The U.S. economy has been and still is the envy of every country in the world. The fact is that In terms of stability, low inflation, employment, productivity and innovation. it is unparalleled. Why would we trade that for the lesser performance of these other countries? To those of you who can't wait for us to depart from the policy of "market fundamentalism", I ask, are you ready to make your case to a government bureaucrat to start a new factory or for a price increase for your products? Are you ready for rationing and shortages? If you think government is corrupt now, just wait until you give them more power and money.
I agree and would like to add to the criticism of the article by asking this -who uses phrases like 'reigning ideology'? what good is a democracy if there is a tyrannical ideology at work ?It is as if the author of the article is afraid of anyone bucking the status quo while simultaneously imbuing it with the powers of a monarchy. I hope the Obama administration rains on the reign that he feigns.
Let's face it both the country and individuals have like drunks with credit cards it was fun for a while but the party is over and the bills are coming due.
What rock are you hiding under Scribbler? The US economy has actually contracted over the last 8 years - the growth was an illusion since it measured only the growth that has now vanished off of the balance sheets.
An industrial policy has nothing to do with your boogymen. I could just as easily ask "are you ready to have to sell your children to your employeer just to keep your job".
a couple of things, free trade doesn't mean us lowering our barriers and them not lowering theirs. Just as we ask for tough direct diplomacy with our enemies we need the same urgency with our trading partners. NAFTA needs to be tweaked and the Columbian fta needs to include workers rights. But what organized Labor needs to recognize is you must organize in those countries. At the same time we have to realize that these other countries either subsidize directly or indirectly by paying for health care costs. Health care to me is the long term economic silver bullet that can structurely help everyone at every level.
This is a great article, thanks for posting.
We are never going to have fair free trade until and unless the cost of living for the workers in all countries is equivalent and all countries face the same level of regulation in the environmental and worker and consumer safety laws.
Those differences are what the "free traders" exploit to increase their profits, and they do NOT want to seem them go away.
The utopia that the free traders on the right envision is the ability to shift production to another country or region at the drop of a hat should the workers where they currently are demand better pay or working conditions, or if the government of the nation where they currently are makes the unfortunate mistake of remembering that their first responsibility is to their citizens - and not to multinational greed.
We've needed an industrial policy since presidential candidate John Anderson proposed such back in the later 70s. The fact is, we're the only advanced nation that doesn't have an industrial policy, and we
can't afford not to nowadays when it comes to intelligent allocation of limited resources.
As was historically documented in an article entitled "'A House Divided'" The Future Of Abraham Lincoln's Republican Party," President Lincoln and the GOP at its birth, were strong advocates of a Industrial Policy [including selective tariffs]; and based upon the public policy statements and domestic legislative program of the Lincoln Administration, that article extrapolates what their most likely proposed industrial policy would be today for our nation. Consequently how disappointed he, and they, would be today to learn that their party has now become the principal advocate of "free trade" and left it to the Democratic Party to formulate an industrial policy for America.
Obama's Team of Rivals and Free Trade
Econ 101 presents the analysis of Smith, Riccardo et. al. which was as valid then as now. The markets, if left alone, allocate our resources better than governments do. Just because other governments interfere in their economies doesn't justify that we do, too. In that case, as we have found this year, we pay the fool's price, just as the others have done.
Obama's team of rivals would do best to devise ways to combat the short-term ill-effects of other countries' industrial policies while continuing to advocate free trade.
"The markets, if left alone, allocate our resources better than governments do. Just because other governments interfere in their economies doesn't justify that we do, too."
Uh-huh...j
Privatization does not a free market make. In a true free market you would not have intellectual property because such property creates a monopoly or a near monopoly for certain goods and production techniques. You would not have corporations with sales the size of the GNP of medium sized nations because such entities can individually affect the balance between supply and demand. American businesses are not a bunch of mom and pop grocers. If the failure of a single bank for example can seriously harm the economy, you are obviously not dealing with a true free market. We have not had a true free market driven completely by the laws of supply and demand in this country since the Civil War. The market can be perverted by private enterprise every bit as much as by the government. The only entity that can possibly put some balance back into the system and make it operate somewhat like a free market is the government.
Paul Krugman won this year's Nobel Prize in Economics for demonstrating how Riccardo's model was flawed. Roughly, properly done industrial policy creates an established, formidable advantage that outweighs local advantage. Which raises the question, why isn't Krugman, the expert, anywhere on the Obama team? Poorly done industrial policy is often just loot and run, like contractors in Iraq.
Also, Smith erred in thinking that preconditions for a free market were "natural laws", leading to the mythology that markets self-regulate. If you want a market, you must maintain it.
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