Yglesias argues that we should consider using industrial policy to help build a green collar economy. Industrial policy, that is having the government intervene in the economy to build or protect key manufacturing sectors. This doesn’t make sense if you’re following a full free-trade model, but that model assumes no economics of scale among other things. Industrial policy is hard but the countries that developed in the later half of the 20th century had such policies as did some that didn’t. However, in some ways industrial policy might not be harder than other things that governments do.
In any event, Yglesias sited an article on how Defense Industrial Policy effectively props up the aviation and electronics sector. The author, Steve Coll, went on to argue that it’s worth considering some such measures for the auto industry to further America’s energy interests. He doesn’t necessarily endorse such a policy, but says that those favoring defense industrial policy can hardly dismiss such an idea on principle. My contribution, which got me an initial credit (Yay!) was letting Yglesias know that industrial policy does indeed speak its name and even has an official Deputy Under Secretary.
So, is Coll right? Yes with a few caveats. Defense industrial policy tends to be concerned with having domestic sources in case conflict cuts off access to foreign supplies. We’re probably a bit too concerned about that, I think we’d be better off making sure we don’t have to fight without our allies than making sure we can fight without them, but that’s a different topic.
So, in that sense, industrial policy doesn’t really apply outside of defense. However, Industrial Policy also plays a role when we’re working with allies. See the tanker example Cole mentions where Northrop is working with a European consortium. The purpose there is to make sure that industry can support Defense Department needs even with support from allies. Also, for better and worse Congress often treats defense industrial policy as a jobs program. Whether guaranteeing supply or ensuring jobs, this mainly matters when we’re talking about industries with high barriers to entry and economics of scale. That’s hardly a unique to the defense sector, so I think Coll’s argument holds up. If defense industrial policy, as commonly implemented in the U.S. makes sense at all, then it also makes sense for other sectors.
Photograph from DoD by Seaman James R. Evans.
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