Policy Research in Macroeconomics

Industrial Policy’s Comeback?

The Boston Review, September, 2021

This is my comment on a major article on Industrial Policy in the Boston Review, published in September, 2021. The leading article was by Professor Mariana Mazzucato, Rainer Kattel and Josh Ryan-Collins.

In their well-executed argument for a new approach to economic policy, Mazzucato, Kattel, and Ryan-Collins spell out how governments could develop an industrial policy to shape and drive innovative opportunities for the future. They rightly demolish the folk tales of neoliberalism: the elevation of markets to mythical status, the reverence for allegedly “independent” central bankers, the skepticism of government action, and the deregulation of trade and foreign direct investment.

I deliberately use the word “could,” however, because a lot hangs on future conditions. While the authors offer both practical and effective strategies for tackling grand challenges, they offer only part of the solution. There are two major gaps in their account that suggest another approach may be needed.

First, while the authors rightly recognize the major challenge posed by climate change, their argument does not convey the urgency of the sixth great extinction and climate breakdown. Human activities have so deeply impinged upon and destabilized the natural order that we have put both countless other species and our own at risk. A paper published last June in the Proceedings of the National Academy of Sciences warned of civilizational collapse. Given the scale of global warming and biodiversity collapse—as well as the catastrophic consequences it is bringing and will continue to bring—this is no time to be writing about “growth” and an expansion of industrial activity.

Indeed, the injunction to “build back better” mistakenly suggests that a global economy of 9 billion people can continue to invade the natural order, to extract and exploit even more of Earth’s finite resources. Even if governments ignore these constraints and go full steam ahead on ambitious industrial strategy, they may well be overwhelmed by another sudden, traumatic, and synchronized catastrophe. In 2014 Oxford development scholar Ian Goldin warned in The Butterfly Defect of pandemics in the pipeline. In his new book, Rescue, he now warns of the “growing inequality, extreme poverty, and ecological breakdown” in our future. These are not optimal conditions for an industrial strategy.

The second gap is a kind of misdiagnosis. The authors follow Goldin in assuming that “neoliberalism” is the “dominant economic model” today. It is not. Instead, as Susan K. Sell has recently argued, “the term ‘neoliberalism’ . . . has become a very large conceptual tent that obscures some important differences between the sharp shift to markets in the 1970s and 1980s under Reagan and Thatcher and the global capitalism of the twenty-first century.” As Sell explains:

Key features of the contemporary era include the outsized role of intangibles in the global economy (e.g., intellectual property, services, financial instruments such as derivatives and securities), the rise of financialization, the quest for profits over economic growth, and the pursuit of competitiveness—not competition—in global markets.

Susan K. Sell in What COVID-19 Reveals About Twenty-First Century Capitalism: Adversity and Opportunity.

These features are not always compatible with orthodox, hard-line neoliberalism. Under this new order, there is increased concentration of economic power, and the owners of intangibles face even less competition than they did before thanks to the state-financed protection of intellectual property (IP) law.

Another distinctive feature of capitalism today is the way it has decimated labor rights and gutted unions—even more comprehensively than under Reagan and Thatcher. Work has become more precarious, even while societies have relied on “essential workers”—in many sectors mostly drawn from communities of color—for their survival throughout the pandemic. These labor market developments, coupled with systemic racism and ever-increasing digitalization, mean that a corporation like Apple—which calls itself a technology company, not an intangibles company—can bring in $1,500 per iPhone, whereas Foxconn and its workers—who manufacture the actual product—get pennies on the dollar.

As Mazzucato and colleagues point out, governments have “accepted externally imposed rules-based frameworks limiting discretionary interventions.” They have done so because international trade agreements are not about trade at all—as even a classical neoliberal might point out—but about entrenching the oligopolies of home-grown IP corporations and billionaires, owners of intangibles, and controllers of global value chains. Governments have neglected antitrust enforcement at home, Sell argues, because they care less about concentration in domestic markets and more about their corporations being globally competitive. Ever since the Uruguay Round of multilateral trade negotiations that ended in 1993, the United States has worked tirelessly to increase property protection, whether through the Trans-Pacific Partnership or massive public investment in the This protection explains why, even in a global pandemic, “mission-oriented” governments could not ensure the global distribution of a vaccine. Patents had been written to exclude others from using knowledge owned by the vaccine manufacturing corporations or Big Pharma. And it’s not just vaccines. A review of the range of masks used during the COVID-19 pandemic revealed that 309 had industry-backed patents behind them. As Sell argues, any government wishing to protect the health and thereby the domestic economy of its people—by compulsory licensing and parallel importation, say, to make essential medicines affordable and accessible—would find its pro-health initiatives blocked by Big Pharma, given the threat to profits and to shareholder capital gains.

This state-backed enforcement of concentrated economic power, together with a state-subsidized financial system buoyed by central bankers, gives the lie to the suggestion that our dominant economic model is neoliberal. In other words, the problem is not that states are not action-oriented. Instead it is that taxpayer resources are deployed to sponsor an increasingly concentrated private sector that has intensified inequality. It is thanks to political decisions—such as the Nixon Shock to international financial architecture fifty years ago—that capital is mobile, that public assets are privatized, and that taxes are dodged. Meanwhile, taxpayers have repeatedly come to the rescue of the private, globalized, and deregulated financial system, bailing them out when they inevitably fall into crisis. In just the same way, the power of today’s Big Pharma oligopolies depends on capital mobility, tax evasion, and a private, deregulated shadow banking system, which in turn is backed and managed by public servants at central banks.

Putting all this together, the lesson is clear: if governments are to use Earth’s finite resources to develop viable strategies for tackling the grand challenges that threaten the very existence of human civilization, the answer cannot lie in the sound creation of an “industrial policy,” however ambitious. The globalized, financialized, monopoly capitalism of our day instead requires wholesale structural reform. Recognition of the role played by taxpayers and states in upholding and extending the power of both Silicon Valley oligopolies and Wall Street investment banks should provide the rationale, the anger, the energy, and the momentum to bring today’s capitalism to heel in the interests of public institutions, public resources, and the public good. Only then will it be possible for governments to devise strategies that protect the security and interests of their people.

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