Is this simply a limitation of capacity? Biden needs to staff these agencies with someone and given the extreme partisan moment that means democrats, and, more specifically democrats he trusts. Those people are probably pretty inclined to see these conditions as just the way it's good to do buisness and maybe it's just really hard for him to exert control to the requisite degree.
Obviously trying to fix child care in America via the CHIPS act is not a great plan. But the child care crisis is very real and no one is fixing it some other way. The same goes for many of the other issues here (NEPA is not great on the merits). Until the other major problems in American life get fixed, there will always be attempts to use the legislation that does happen to try to fix them. If you want industrial policy to work effectively without being loaded down with other priorities, then those priorities have to also be addressed.
One in a continuing series of "why I don't automatically approve of well-intentioned Democratic policies without reading the fine print". Happens often here in SF...there'll be an initiative or amendment or whatever for something I really want - more housing! funding for public transit! infrastructure! - but then smuggled in there will be all the same kinda riders as on CHIPS...contractors have to be union and paid "fair wages" (defined as...?), there's environmentalist Gods to make Sacrifices to, workers will receive health insurance and childcare by default, etcetera. I'm not necessarily opposed to these side goals! But I would like to see them stand on their own merits, rather than laundered through the old-fashioned "pork" process. (I guess it's only pork if it's for things we disapprove of.)
It's not just because this feels dishonest, undermines trust in govt, and on the margin turns people generally-reactionary against otherwise Good Things because they crippled Unrelated Thing. (Like, it's dumb to hamstring carbon taxes for not advancing Climate Equity enough, but __also__ dumb to thus be against every form of addressing socioeconomic disparities.) It's also because it fuels the bipartisan trend of putting policies and laws on the books that don't work, due to lack of enforcement or self-own sabotage like this. And everyone kinda knows this is bullshit? Like it's not actually a win for YIMBYs to pass housing legislation saddled with progressive pie dreams __if it results in no houses actually being built__. That discredits the cause by making it look like a front, as well as objectively being a waste of everyone's time and effort. Results on pressing issues matter, not vibes.
I do get that politics is the art of compromise, and some amount of unrelated baggage is just the ordinary deadweight loss cost of getting votes. But there are smart ways to do this and dumb ways to do this...having the IRA "actually" be a climate bill was clever, giving just enough macroeconomic cover to push through some needed GND-style subsidies and investments that woulda been hyper-polarized otherwise. The CHIPS Act is doing it the dumb way. You squirreled it away in a footnote, but it does seem obvious and necesssary to say aloud: erecting a bunch of burdensome and unrelated restrictions on supposed investment and subsidy is gonna make it a lot harder to invest and subsidize. We saw this in marijuana legalization too...suddenly all these token Women And Minority Owned weed shops came out of the woodwork. Incentives matter!
(Also reinforces your argument that "onshoring" writ large is probably good, but that doesn't have to mean "literally in America", because it's just not our comparative advantage anymore to do a lot of these types of manufacturing. And our local allies could sure use the business too - perhaps in exchange for other policy concessions we want.)
The Biden administration is acting like the semiconductor industry came to it begging for money, and that the administration is doing the industry some sort of big favor by offering it money. In fact, the administration is worried about the macroeconomic and national-security ramifications of not having significant, domestic semiconductor manufacturing and offered subsides to beg companies to set some up in a relatively high-cost country. Then all of a sudden the administration acted as if its begging was really the offer of a big gift that had to come with strings attached.
If the CHIPS act (and all the other stuff) has so many strings attached that nobody uses them: then we spent months on bills which accomplished nothing. In business there's a saying that you can have: a low price, great service, or fast delivery. Pick two because you're never going to get three. While the same isn't EXACTLY true here: Biden is trying to foster unions, please the Progressive activists who think the sky is falling on everything, everywhere all the time, and make America compete with China. I'd tell the President: pick two (and I know who loses out in my calculus).
I really liked this piece. Very interesting that how our growth plan for the early 20th century ran up against our Hukou system and the Hukou system won.
Meanwhile in China, the Hukou system was weakened (though it still exists, obviously).
I wonder how many Democratic lawmakers and appointees are operating under the theory that "semiconductors are what I should do (technocratically), but unions and childcare are what I need to be seen doing (politically)". So the strategy is a sugar-coated pill, the minimum amount of PR to provide cover for the industrial policy.
Except! Voters love industrial investment in semiconductors. It especially speaks to cross-pressured voters negative on the Biden economy. So if that's the political strategy, its also bad politics. Ignore the groups!
Is CHIPS really a "progressive Christmas tree" or does it reflect the inertial nature of standard Federal policy?
Favoring small businesses and minority and/or women-owned business is standard in Federal contracting. NEPA is still the law of the land. Favoring trade unions and union wage levels is not what we typically think of as "progressive" as it's pictured these days. Day care provisions are obviously a new thing, but aren't required at least yet.
In other words, this is how the government manages the funds it distributes. You may want an industrial policy that is shorn of these secondary aspects but that would require an active intervention to counter what is typically done. And following the path of inertia is always the first choice for government.
That said, I think Matt's recommendations for better industrial policy (e.g., changing visa policy) are great. It just probably wouldn't have happened with the makeup of Congress. So, given reality, it was a pretty good outcome!
The day care aspect is a deferent issue. I think it is a really bad idea to encourage each and ever firm to provide da care or its employees. We should have a CTC that subsidizes the cost of having children, including but not exclusively the need or labor-intensive care in early years.
Tech companies all over the world since the beginning of the digital age have been immensely successful and profitable while adhering to the labor norms of social democracies and other more economically fair nations such as Finland, Germany, and Israel. If we are going to potentially have a boom of US domestic chip manufacturing, why is it “pointless” to try to force them to do right by labor? Americans are not a different species from non-American humans. US soil is not on another planet with different gravity or in another universe with different laws of physics. If someone builds good chips here, their business will be profitable enough to do right by everyone involved. Why are you resigned to the inevitability of grotesquely exploitative business and manufacturing practices? Sometimes, it really is ok to expect people to be decent, and not monsters. I think it’s partly the low expectations signaled by you and people like you with more power that got us to this point in the first place.
I mean, I think some of these policies are simply bad in their own right. Tying child care to employment is just replicating what the US already famously did with healthcare- after all, if you lose your job at the semiconductor plant, you lose your child care *at the same time*. Finland, Germany and Israel generally provide these kinds of goods directly, which I personally think is a better system
Having a high brow piece about industrial policy is great. But I can’t get over my shock of the revelation in the first paragraph: it’s the official policy of the federal government to mandate that companies work only with people of a certain sex and skin color ?! How on earth is that constitutional? Who suggested this and how were they not laughed out of the room (or better yet , fired)? Why is racism so mainstream now that MY can mention this incidentally as a matter of fact and not even have this be a central point in his piece?
I also find these types of things crazy, but they're not new. See for example the Randolph–Sheppard Act https://en.wikipedia.org/wiki/Randolph%E2%80%93Sheppard_Act (Short version: companies owned by blind people in practice run all the vending facilities on Federal property.)
It's not a mandate that they work only with women and minority owned contractors, it's a mandate that they try to work with some women and minority contractors.
Beyond the question of principle and constitutionality , think also about how corrupting it is for the economy. Surely it will encourage endless fronts of fake ownerships etc to meet the arbitrary criteria ?
Seems like the economic impact might be significant. Probably a very worthwhile study that will be conducted someday (assuming the data can be gathered somehow).
That’s a difference in degree. It still gives advantage (or disadvantage) based on race and sex. Such policies shouldn’t exist. I hope that in the short term the court strikes it down but that in the longer term the country will reach the point that such ideas are beyond the pale and not a single politician will dare suggest them, much less having the WH implement them. It’s the kind of stuff that will mortify our grandkids. How are people so blind to the absurdity ? To the sheer affront to human dignity and basic principles of good governance when the government asks you your sex or race to determine if your business is eligible for a subsidy?
To play devil's advocate: because hundreds of years of American history has shown that people tend to hire other people who are like them (i.e. look like them or culturally have the same background), and that there literally is no other way that people who are not considered "the old boys" can break into the club unless some governing authority clumsily forces it down their throat?
Just look at the NFL. The Indianapolis Colts just this past season hired a white guy with literally no coaching experience on any level to be their head coach over the multitude of experienced non-whites who have toiled for years in the league. Even with the Rooney Rule implemented, the NFL (and frankly nearly all the sports leagues) are very stubborn about this.
I have no other point than, as a government, you kinda have to try ham-fisted, even symbolical, diversification attempts. It literally will not happen on its own, and entire demographics of people will be excluded from just about all sectors of the economy.
THPacis, why do you hate lesbian disabled veterans so much? /s
Seriously though, during the 18 months I was a federal contractor, I saw this dysfunction firsthand. My contracting company had grown slightly too large to qualify for the re-compete of an Operations Center staffing contract as a "small business" (<$30M), and when we heard that the contract had in fact been awarded to a basically non-existent disabled veteran, minority owned small business (with a totally generic website template that had zero contact information), we expected to either be let go or rehired by said small business. In fact, my company was simply hired as a sub-contractor, and our pay wasn't even cut, so as far as we could tell, this "small business" that won the sole-source contract (which appeared to be two women working from a residential address), literally forwarded invoices from our company (and presumably collected a profit).
Also, although I never worked for them, it's always seemed odd to me how so many of the contractors at my current office are perpetually cycling from one Alaskan Native Corporation to another (Alutiiq, Olgoonik, Tatitlek etc), even though no one (nor any of the work) has even the slightest connection to Alaska.
EDIT: Apparently sole source awards to ANCs cannot be protested, which explains a lot...
I'm in a heavy DoD town, and literally (I mean literally) every machine shop that does work for govt has a female figurehead so they have a chance of winning contracts.
Most double or triple down with minority, veteran, and/or disabled, too.
So this gets at some of my core dubiousness of Matt's technocratic neoliberal shill positioning. Specifically the technocracy.
I think it's fairly easy to say, in the abstract, "The government should encourage this thing," here semiconductor manufacturing investment, and have that look like a pretty attractive idea compared to just, "We should keep our hands off and let markets do their work."
But when you have the government getting heavily involved in the details of specifics of the economy, you steadily increase your reliance on the government making good decisions and having a functional bureaucracy. Not just *now*, when the policy is made, but for years to come. Perhaps forever, or at least until the next time you have a big clearing-of-the-tables of government policy. Does anyone want to look me straight in the eye and say that they have a great deal of confidence in the government's ability to make tons of good decisions at the detail level?
I feel like if you look at industrial policy success stories with the long view, this seems like a key weakness. Japan is my primary example: they created a manufacturing industry based on heavy government involvement with their manufacturing, but after a decade or so of success, they seemed pretty unable to react well to the rise of cheaper manufacturing regimes, the technological shift to information-age systems, and indeed they more recently dropped the ball on electric vehicles. I don't know as much about Korea, and China seems like it's too soon to say whether their recent troubles presage a real collapse in the success of their industrial policy or not.
With all three of those countries, you can plausibly say, "Hey, look, yes there are places where they grew hidebound and bureaucratic, but they made such big strides from here to there that it was clearly worth it." But the US isn't 1950s Japan or 1980s Korea or China (nor are we 1880s USA). We're bigger and messier and much, much richer. It seems like that's a situation where it'll be hard to ram through some clear-eyed good decisions, pick up the wins, and get a big improvement in our economy and living standards, and more likely to emphasize the downsides of yet more rulemaking and some random bureaucrat somewhere making bad decisions that then redound throughout the economy.
I think if you look at the spectacular wealth creation in South Korea over the past few decades, it would be hard to say that their industrial policy could ever be considered a failure even if they face some economic headwinds in the near future.
Sure! And i think you can make similar arguments for Japan and China.
But our higher base wealth means that we aren't going to double our GDP with industrial policy, but we still get the lingering dependence on ongoing good decision making.
And while the idea and execution of industrial policy were excellent back in the day for these countries, that doesn't mean the same playbook will work well indefinitely.
Very good article. Keying off the comment about how China uses the carrot of access to it's large domestic market to get leverage over other countries:
The next extension of the idea of an explicit industrial policy for strategic industries like semiconductors, that constitute the "commanding heights" of the modern economy (to borrow a phrase from Marxist economics), should be to bring our closest allies into the fold. It is in the mutual interests of the United States and the countries that are or should be our closest strategic allies (Canada, Mexico, Japan, and the UK, for starters) to draw a perimeter of defense around the whole allied bloc, with the goal of a unified market and without internal trade barriers even for the most strategic of industries.
Big agree. I think the rich Western democracies should be slowly moving towards greater unification. And by the West I mean the US, Canada, the EU, Britain, Australia and Japan (I'd love to include South Korea too if possible, I'm a maybe on Israel). These countries together are 5-7x the size of China's economy!
Unified market with minimal trade barriers. Visa-free travel. Open collaboration between universities. Pooled defense and general scientific R&D. NATO mutual defense structure. Common technical and legal standards. Agreed-upon mutual sanction power. A G-20 like council where political issues get hashed out. And of course, America at the heart of it.
Other countries can be allies, the way we have major non-NATO allies now. Brazil, India, Mexico.... they're all free to be allies (once they agree to our conditions, of course)
I've loved the idea of something like this for a long time, and I think there could be a fascinating alternate history whereby John McCain wins in 2008 and creates the League of Democracies (that he historically championed).
Unfortunately, I think Israel would likely not meet many of the standards (if they were objectively enforced), and of course it's currently heading full steam in the opposite direction... There's a reason that Israel isn't included in the Visa Waiver Program.
It's a good idea. Obviously it would take decades if not a century to get fully off the ground, and even then probably only in response to emergencies (Taiwan invasion, etc.) along the way....
I think pushing greater economic ties via free trade agreements is probably the way to get it kickstarted. Once countries are tied together economically, the other pieces usually fall into place. So a US-EU free trade deal, US-Japan, EU-Japan, etc. It might actually be easier to get these through Congress as they're not with low-wage countries.
The US could also pursue a parallel track of tieing the former Commonwealth countries (UK, Canada, Australia, NZ etc.) together, maybe with visa-free travel. Get them to sign a mutual defense treaty (for example the UK and Australia actually don't have one presently). Anyways this would be a multi-decade project, probably wise to pursue a few different ways of getting it done
“Industrial Policy” means, at least, directing/encouraging/ incentivizing private investments in ways and in amounts that entrepreneurs, sans such incentives, would not have chosen. This can make sense if there is a clear rationale for why the market alone directed choices are “wrong” and the incentives offset the wrongness. A rim investing in electricity generation does not on profit maximizing grounds take account of the arm to users of the atmosphere rom the CO2 emitted by alternative technologies. A tax on net emissions o CO2 incentivizes them to take that into account and that’s “industrial policy.”
Likewise, an entrepreneur investing in new chipmaking capacity would not take account of the risk that locating that capacity in country X or Z could cause harm to the economy should imports rom country X be disrupted on political grounds would be greater than the effects on their profits. A tax on imports of chips from countries X or Z could correct this “mistake” and that would be “industrial policy.”
The potential problems of “industrial policy” comes if the market “mistake” that the policy seeks to correct is incorrectly identified or the counter-incentive does not precisely address the cause of the “mistake.” It is a little hard to see that a failure to provide day care or pay Davis Bacon wages is part of the reason that a chip-maker might invest in country X or Z instead of domestically, so these provisions seem to be bad “industrial policy.” [Now providing day care o paying Davis Bacon wages may be desirable objectives in themselves, but requiring ten only o an arbitrary subset of firms is inefficient; all firms should be so required or appropriately incentivized to do so.]
All in all, this appears to be an aspect of a more general problem, a failure to design policies in accordance wit cost-benefit analysis.
Is this simply a limitation of capacity? Biden needs to staff these agencies with someone and given the extreme partisan moment that means democrats, and, more specifically democrats he trusts. Those people are probably pretty inclined to see these conditions as just the way it's good to do buisness and maybe it's just really hard for him to exert control to the requisite degree.
Obviously trying to fix child care in America via the CHIPS act is not a great plan. But the child care crisis is very real and no one is fixing it some other way. The same goes for many of the other issues here (NEPA is not great on the merits). Until the other major problems in American life get fixed, there will always be attempts to use the legislation that does happen to try to fix them. If you want industrial policy to work effectively without being loaded down with other priorities, then those priorities have to also be addressed.
One in a continuing series of "why I don't automatically approve of well-intentioned Democratic policies without reading the fine print". Happens often here in SF...there'll be an initiative or amendment or whatever for something I really want - more housing! funding for public transit! infrastructure! - but then smuggled in there will be all the same kinda riders as on CHIPS...contractors have to be union and paid "fair wages" (defined as...?), there's environmentalist Gods to make Sacrifices to, workers will receive health insurance and childcare by default, etcetera. I'm not necessarily opposed to these side goals! But I would like to see them stand on their own merits, rather than laundered through the old-fashioned "pork" process. (I guess it's only pork if it's for things we disapprove of.)
It's not just because this feels dishonest, undermines trust in govt, and on the margin turns people generally-reactionary against otherwise Good Things because they crippled Unrelated Thing. (Like, it's dumb to hamstring carbon taxes for not advancing Climate Equity enough, but __also__ dumb to thus be against every form of addressing socioeconomic disparities.) It's also because it fuels the bipartisan trend of putting policies and laws on the books that don't work, due to lack of enforcement or self-own sabotage like this. And everyone kinda knows this is bullshit? Like it's not actually a win for YIMBYs to pass housing legislation saddled with progressive pie dreams __if it results in no houses actually being built__. That discredits the cause by making it look like a front, as well as objectively being a waste of everyone's time and effort. Results on pressing issues matter, not vibes.
I do get that politics is the art of compromise, and some amount of unrelated baggage is just the ordinary deadweight loss cost of getting votes. But there are smart ways to do this and dumb ways to do this...having the IRA "actually" be a climate bill was clever, giving just enough macroeconomic cover to push through some needed GND-style subsidies and investments that woulda been hyper-polarized otherwise. The CHIPS Act is doing it the dumb way. You squirreled it away in a footnote, but it does seem obvious and necesssary to say aloud: erecting a bunch of burdensome and unrelated restrictions on supposed investment and subsidy is gonna make it a lot harder to invest and subsidize. We saw this in marijuana legalization too...suddenly all these token Women And Minority Owned weed shops came out of the woodwork. Incentives matter!
(Also reinforces your argument that "onshoring" writ large is probably good, but that doesn't have to mean "literally in America", because it's just not our comparative advantage anymore to do a lot of these types of manufacturing. And our local allies could sure use the business too - perhaps in exchange for other policy concessions we want.)
Progressives: Detach health care from employment!
Progressives: Attach child care to employment!
The Biden administration is acting like the semiconductor industry came to it begging for money, and that the administration is doing the industry some sort of big favor by offering it money. In fact, the administration is worried about the macroeconomic and national-security ramifications of not having significant, domestic semiconductor manufacturing and offered subsides to beg companies to set some up in a relatively high-cost country. Then all of a sudden the administration acted as if its begging was really the offer of a big gift that had to come with strings attached.
If the CHIPS act (and all the other stuff) has so many strings attached that nobody uses them: then we spent months on bills which accomplished nothing. In business there's a saying that you can have: a low price, great service, or fast delivery. Pick two because you're never going to get three. While the same isn't EXACTLY true here: Biden is trying to foster unions, please the Progressive activists who think the sky is falling on everything, everywhere all the time, and make America compete with China. I'd tell the President: pick two (and I know who loses out in my calculus).
I really liked this piece. Very interesting that how our growth plan for the early 20th century ran up against our Hukou system and the Hukou system won.
Meanwhile in China, the Hukou system was weakened (though it still exists, obviously).
I wonder how many Democratic lawmakers and appointees are operating under the theory that "semiconductors are what I should do (technocratically), but unions and childcare are what I need to be seen doing (politically)". So the strategy is a sugar-coated pill, the minimum amount of PR to provide cover for the industrial policy.
Except! Voters love industrial investment in semiconductors. It especially speaks to cross-pressured voters negative on the Biden economy. So if that's the political strategy, its also bad politics. Ignore the groups!
Is CHIPS really a "progressive Christmas tree" or does it reflect the inertial nature of standard Federal policy?
Favoring small businesses and minority and/or women-owned business is standard in Federal contracting. NEPA is still the law of the land. Favoring trade unions and union wage levels is not what we typically think of as "progressive" as it's pictured these days. Day care provisions are obviously a new thing, but aren't required at least yet.
In other words, this is how the government manages the funds it distributes. You may want an industrial policy that is shorn of these secondary aspects but that would require an active intervention to counter what is typically done. And following the path of inertia is always the first choice for government.
That said, I think Matt's recommendations for better industrial policy (e.g., changing visa policy) are great. It just probably wouldn't have happened with the makeup of Congress. So, given reality, it was a pretty good outcome!
Glad you published this one despite the challenges you had formulating it.
The day care aspect is a deferent issue. I think it is a really bad idea to encourage each and ever firm to provide da care or its employees. We should have a CTC that subsidizes the cost of having children, including but not exclusively the need or labor-intensive care in early years.
Tech companies all over the world since the beginning of the digital age have been immensely successful and profitable while adhering to the labor norms of social democracies and other more economically fair nations such as Finland, Germany, and Israel. If we are going to potentially have a boom of US domestic chip manufacturing, why is it “pointless” to try to force them to do right by labor? Americans are not a different species from non-American humans. US soil is not on another planet with different gravity or in another universe with different laws of physics. If someone builds good chips here, their business will be profitable enough to do right by everyone involved. Why are you resigned to the inevitability of grotesquely exploitative business and manufacturing practices? Sometimes, it really is ok to expect people to be decent, and not monsters. I think it’s partly the low expectations signaled by you and people like you with more power that got us to this point in the first place.
I mean, I think some of these policies are simply bad in their own right. Tying child care to employment is just replicating what the US already famously did with healthcare- after all, if you lose your job at the semiconductor plant, you lose your child care *at the same time*. Finland, Germany and Israel generally provide these kinds of goods directly, which I personally think is a better system
Can you point to the unions that helped build Silicon Valley? Is unionism an important part of the story of Silicon Valley?
Having a high brow piece about industrial policy is great. But I can’t get over my shock of the revelation in the first paragraph: it’s the official policy of the federal government to mandate that companies work only with people of a certain sex and skin color ?! How on earth is that constitutional? Who suggested this and how were they not laughed out of the room (or better yet , fired)? Why is racism so mainstream now that MY can mention this incidentally as a matter of fact and not even have this be a central point in his piece?
I also find these types of things crazy, but they're not new. See for example the Randolph–Sheppard Act https://en.wikipedia.org/wiki/Randolph%E2%80%93Sheppard_Act (Short version: companies owned by blind people in practice run all the vending facilities on Federal property.)
It's not a mandate that they work only with women and minority owned contractors, it's a mandate that they try to work with some women and minority contractors.
P.S.
Beyond the question of principle and constitutionality , think also about how corrupting it is for the economy. Surely it will encourage endless fronts of fake ownerships etc to meet the arbitrary criteria ?
This happens all the time but no one ever strings together the individual stories into a larger narrative for the obvious reasons.
Seems like the economic impact might be significant. Probably a very worthwhile study that will be conducted someday (assuming the data can be gathered somehow).
This horse left the barn decades ago. It's how, e.g., all DoD contracts are competed.
That’s horrifying. Is this not being litigated?
That’s a difference in degree. It still gives advantage (or disadvantage) based on race and sex. Such policies shouldn’t exist. I hope that in the short term the court strikes it down but that in the longer term the country will reach the point that such ideas are beyond the pale and not a single politician will dare suggest them, much less having the WH implement them. It’s the kind of stuff that will mortify our grandkids. How are people so blind to the absurdity ? To the sheer affront to human dignity and basic principles of good governance when the government asks you your sex or race to determine if your business is eligible for a subsidy?
To play devil's advocate: because hundreds of years of American history has shown that people tend to hire other people who are like them (i.e. look like them or culturally have the same background), and that there literally is no other way that people who are not considered "the old boys" can break into the club unless some governing authority clumsily forces it down their throat?
Just look at the NFL. The Indianapolis Colts just this past season hired a white guy with literally no coaching experience on any level to be their head coach over the multitude of experienced non-whites who have toiled for years in the league. Even with the Rooney Rule implemented, the NFL (and frankly nearly all the sports leagues) are very stubborn about this.
I have no other point than, as a government, you kinda have to try ham-fisted, even symbolical, diversification attempts. It literally will not happen on its own, and entire demographics of people will be excluded from just about all sectors of the economy.
THPacis, why do you hate lesbian disabled veterans so much? /s
Seriously though, during the 18 months I was a federal contractor, I saw this dysfunction firsthand. My contracting company had grown slightly too large to qualify for the re-compete of an Operations Center staffing contract as a "small business" (<$30M), and when we heard that the contract had in fact been awarded to a basically non-existent disabled veteran, minority owned small business (with a totally generic website template that had zero contact information), we expected to either be let go or rehired by said small business. In fact, my company was simply hired as a sub-contractor, and our pay wasn't even cut, so as far as we could tell, this "small business" that won the sole-source contract (which appeared to be two women working from a residential address), literally forwarded invoices from our company (and presumably collected a profit).
Also, although I never worked for them, it's always seemed odd to me how so many of the contractors at my current office are perpetually cycling from one Alaskan Native Corporation to another (Alutiiq, Olgoonik, Tatitlek etc), even though no one (nor any of the work) has even the slightest connection to Alaska.
EDIT: Apparently sole source awards to ANCs cannot be protested, which explains a lot...
https://www.alutiiq.com/our-contracting-benefits/
I'm in a heavy DoD town, and literally (I mean literally) every machine shop that does work for govt has a female figurehead so they have a chance of winning contracts.
Most double or triple down with minority, veteran, and/or disabled, too.
Where is scotus on all this ?!
Hopefully the current court will get to it.
Because aside from the racist and sexist issues*, I doubt it is even achieving the results they want.
At those machine shops, not a single woman is to be found regularly, except maybe in a secretary/receptionist role.
Even the nominal owners are usually just the wives of the men who run the shop.
*If you give preference to all women, and to all minorities, it is de facto just a penalty for white men.
So this gets at some of my core dubiousness of Matt's technocratic neoliberal shill positioning. Specifically the technocracy.
I think it's fairly easy to say, in the abstract, "The government should encourage this thing," here semiconductor manufacturing investment, and have that look like a pretty attractive idea compared to just, "We should keep our hands off and let markets do their work."
But when you have the government getting heavily involved in the details of specifics of the economy, you steadily increase your reliance on the government making good decisions and having a functional bureaucracy. Not just *now*, when the policy is made, but for years to come. Perhaps forever, or at least until the next time you have a big clearing-of-the-tables of government policy. Does anyone want to look me straight in the eye and say that they have a great deal of confidence in the government's ability to make tons of good decisions at the detail level?
I feel like if you look at industrial policy success stories with the long view, this seems like a key weakness. Japan is my primary example: they created a manufacturing industry based on heavy government involvement with their manufacturing, but after a decade or so of success, they seemed pretty unable to react well to the rise of cheaper manufacturing regimes, the technological shift to information-age systems, and indeed they more recently dropped the ball on electric vehicles. I don't know as much about Korea, and China seems like it's too soon to say whether their recent troubles presage a real collapse in the success of their industrial policy or not.
With all three of those countries, you can plausibly say, "Hey, look, yes there are places where they grew hidebound and bureaucratic, but they made such big strides from here to there that it was clearly worth it." But the US isn't 1950s Japan or 1980s Korea or China (nor are we 1880s USA). We're bigger and messier and much, much richer. It seems like that's a situation where it'll be hard to ram through some clear-eyed good decisions, pick up the wins, and get a big improvement in our economy and living standards, and more likely to emphasize the downsides of yet more rulemaking and some random bureaucrat somewhere making bad decisions that then redound throughout the economy.
I think if you look at the spectacular wealth creation in South Korea over the past few decades, it would be hard to say that their industrial policy could ever be considered a failure even if they face some economic headwinds in the near future.
Sure! And i think you can make similar arguments for Japan and China.
But our higher base wealth means that we aren't going to double our GDP with industrial policy, but we still get the lingering dependence on ongoing good decision making.
And while the idea and execution of industrial policy were excellent back in the day for these countries, that doesn't mean the same playbook will work well indefinitely.
Very good article. Keying off the comment about how China uses the carrot of access to it's large domestic market to get leverage over other countries:
The next extension of the idea of an explicit industrial policy for strategic industries like semiconductors, that constitute the "commanding heights" of the modern economy (to borrow a phrase from Marxist economics), should be to bring our closest allies into the fold. It is in the mutual interests of the United States and the countries that are or should be our closest strategic allies (Canada, Mexico, Japan, and the UK, for starters) to draw a perimeter of defense around the whole allied bloc, with the goal of a unified market and without internal trade barriers even for the most strategic of industries.
Big agree. I think the rich Western democracies should be slowly moving towards greater unification. And by the West I mean the US, Canada, the EU, Britain, Australia and Japan (I'd love to include South Korea too if possible, I'm a maybe on Israel). These countries together are 5-7x the size of China's economy!
Unified market with minimal trade barriers. Visa-free travel. Open collaboration between universities. Pooled defense and general scientific R&D. NATO mutual defense structure. Common technical and legal standards. Agreed-upon mutual sanction power. A G-20 like council where political issues get hashed out. And of course, America at the heart of it.
Other countries can be allies, the way we have major non-NATO allies now. Brazil, India, Mexico.... they're all free to be allies (once they agree to our conditions, of course)
I've loved the idea of something like this for a long time, and I think there could be a fascinating alternate history whereby John McCain wins in 2008 and creates the League of Democracies (that he historically championed).
Unfortunately, I think Israel would likely not meet many of the standards (if they were objectively enforced), and of course it's currently heading full steam in the opposite direction... There's a reason that Israel isn't included in the Visa Waiver Program.
It's a good idea. Obviously it would take decades if not a century to get fully off the ground, and even then probably only in response to emergencies (Taiwan invasion, etc.) along the way....
I think pushing greater economic ties via free trade agreements is probably the way to get it kickstarted. Once countries are tied together economically, the other pieces usually fall into place. So a US-EU free trade deal, US-Japan, EU-Japan, etc. It might actually be easier to get these through Congress as they're not with low-wage countries.
The US could also pursue a parallel track of tieing the former Commonwealth countries (UK, Canada, Australia, NZ etc.) together, maybe with visa-free travel. Get them to sign a mutual defense treaty (for example the UK and Australia actually don't have one presently). Anyways this would be a multi-decade project, probably wise to pursue a few different ways of getting it done
“Industrial Policy” means, at least, directing/encouraging/ incentivizing private investments in ways and in amounts that entrepreneurs, sans such incentives, would not have chosen. This can make sense if there is a clear rationale for why the market alone directed choices are “wrong” and the incentives offset the wrongness. A rim investing in electricity generation does not on profit maximizing grounds take account of the arm to users of the atmosphere rom the CO2 emitted by alternative technologies. A tax on net emissions o CO2 incentivizes them to take that into account and that’s “industrial policy.”
Likewise, an entrepreneur investing in new chipmaking capacity would not take account of the risk that locating that capacity in country X or Z could cause harm to the economy should imports rom country X be disrupted on political grounds would be greater than the effects on their profits. A tax on imports of chips from countries X or Z could correct this “mistake” and that would be “industrial policy.”
The potential problems of “industrial policy” comes if the market “mistake” that the policy seeks to correct is incorrectly identified or the counter-incentive does not precisely address the cause of the “mistake.” It is a little hard to see that a failure to provide day care or pay Davis Bacon wages is part of the reason that a chip-maker might invest in country X or Z instead of domestically, so these provisions seem to be bad “industrial policy.” [Now providing day care o paying Davis Bacon wages may be desirable objectives in themselves, but requiring ten only o an arbitrary subset of firms is inefficient; all firms should be so required or appropriately incentivized to do so.]
All in all, this appears to be an aspect of a more general problem, a failure to design policies in accordance wit cost-benefit analysis.