Another ‘industrial policy’ fail

Another ‘industrial policy’ fail

University of Pittsburgh and Carnegie Mellon University researchers might be careful what they wish for. For their glee over federal “bipartisan” legislation that could funnel millions of public dollars into their institutions could have very somber consequences.

As the Post-Gazette reports it, “Pittsburgh-area universities and companies are closely watching legislation that will not only direct tens of billions of dollars to semiconductor manufacturers, but also will open new funding streams for advanced technology research and development.”

The “seen” to the salivating concerns is the large bolus of federal research dollars. The “unseen” is the damage that this ancillary batch of corporate wealthfare stands to cause the economy and, with it, the ability to market any advanced products they do develop.

As Cato Institute scholars Scott Lincicome and Alfredo Carrillo Obregon reminded recently, the legislation is far more political theater than sound public policy.

“As a policy matter … the already‐​weak economic case for the subsidies … has become even weaker,” they note. “For starters, there has been even more [private] chipmaking investment dedicated to the U.S. market, even as federal subsidies have languished.”

Construction has been underway at four major U.S. facilities and will continue with or without subsidies, “something even Intel reluctantly acknowledged when it delayed the groundbreaking ceremony on its much‐​ballyhooed” – and, we must add, already heavily state-taxpayer-subsidized – “Ohio facility to protest congressional inaction.”

That’s because, the Cato researchers remind, “there are real economic and geopolitical reasons [for private investment] in additional U.S. semiconductor production” and no federal subsidies are necessary.

But even more consequential is the fact that “the global semiconductor shortage is coming to an end and might even be replaced by a semiconductor glut, even before any new federal subsidies might further goose global chipmaking capacity,” Lincicome and Obregon note.

“In other words, just as Congress is gearing up to throw $70‐​plus billion at cash‐​rich semiconductor manufacturers, there are increasing signs of excess supply and lagging demand in the notoriously cyclical (boom‐​and‐​bust) global semiconductor market—a situation that those subsidies could exacerbate,” the think tank researchers stress.

And the fallout from that? “(A) subsidy‐​induced semiconductor glut would not only cause financial pain for chipmakers and their investors, but also increase the potential for costly trade conflicts similar to those that erupted in the 1980s and 1990s following a similarly‐​misguided U.S. embrace of industrial subsidies and ‘strategic’ planning,” Lincicome and Obregon warn.

Nonetheless, more than a few pols tout the coupling of “chipfare” dollars with research dollars as a wonderful victory for “bipartisanship.”

Never mind that it is a bipartisanship that “in this case is politically opportunistic cooperation across the aisle to loot taxpayers for the benefit of politically powerful producers,” says Don Boudreaux, a professor of economics at George Mason University.

All this said, this legislation’s concomitant opening of new funding streams for advanced technology research and development at the Pitts and the CMUs of the nation just might be worthy.

But the federal government’s latest foray into imprudent “industrial policy” — and its predictable fallout — stands to do more harm than good to an R&D community finding the marketplace for its latest gee-whiz and gangbuster advances automatically hamstrung.

Colin McNickle is communications and marketing director at the Allegheny Institute for Public Policy (cmcnickle@alleghenyinstitute.org).