At just about every level of government these days, and little matter to political persuasion, the “need” for an “industrial policy” has invaded the psyche of far too many public policy makers. It’s as if the producers of “Invasion of the Body Snatchers” now have produced a sequel – “Invasion of the Sound Brain Snatchers. “
Never mind, as many an economist have noted, that U.S. factory output remains at its all-time high, the machinators for “industrial policy” keep devising scheme after scheme to bolster what they insist is this country’s drawn and quartered manufacturing segment.
That’s not to say that manufacturing jobs have not dropped. And it’s not to say that manufacturing wages aren’t what they once were. They have and they are not, respectively. But as Vance Ginn, an associate research fellow at the American Institute for Economic Research (AIER), recently noted on the think tank’s website:
“States in the Rust Belt doubled down on unionized labor models, raised business taxes and created regulatory minefields that discouraged investment and entrepreneurship. Federal policies layered on compliance burdens, from OSHA to EPA mandates, while failing to reform outdated labor and tax codes.
“Simultaneously,” Ginn reminds, “capital became more productive and affordable. In response to high labor costs and inflexible work rules, firms invested in automation and supply chain restructuring — rational market behavior in the face of poor policy.”
But government interventionists (or are they legacy-seeking panderers) could not sit idly by and accept the markets’ natural reaction to their meddling.
“More intervention!” they shouted. And more intervention there has been: billions upon billions of dollars heaped on new, favored and/or beleaguered industries to save “good-paying manufacturing jobs.”
Ah, “industrial policy” – new government interventions to cover up the lie of each last failed government intervention.
Back to AIER’s Vance Ginn. He notes that rather than fixing what broke labor markets – “rigid institutions, perverse tax codes, today’s political class is dusting off the old playbook of industrial policy.”
Per Ginn:
“The logic goes something like this: government should ‘bring back’ manufacturing jobs by picking industries to support, offering subsidies, or restricting imports. This thinking underlies the CHIPS Act, the Inflation Reduction Act, and growing bipartisan calls for trade protectionism.
“But industrial policy doesn’t work,” Ginn flatly, and correctly, states. “It reallocates capital based on political incentives, not economic ones. It props up politically favored firms and industries at the expense of dynamic sectors that don’t have lobbyists in D.C.
“More fundamentally,” Ginn stresses, “it misunderstands what made America rich in the first place: the freedom to specialize, innovate, and trade. We didn’t prosper by controlling the direction of jobs. We prospered by getting government out of the way.”
But, but, but, the interventionist will smugly snap their braces, “Look at all the new factory jobs we have created!”
But if they are created at all (and then last at all), Ginn reminds what eludes these hubris-filled jobs “saviors” and/or “creators”:
Such jobs “come at great cost: higher prices, distorted markets, and reduced competitiveness. In trying to become more like China, we risk becoming less like America.”
There is, however, a sound, market-based way to keep the American economy on the cutting edge of growth.
“If we want a vibrant labor market — one that pays well and creates opportunity — we should focus on free-market reforms, not nostalgia-driven interventions.”
Among Ginn’s entreaties:
- Cut marginal tax rates on both labor and capital, especially at the state level
- Eliminate crony subsidies that reward political connections over performance.
- Deregulate labor markets, making it easier to hire, fire, and negotiate flexible work arrangements.
- Expand school choice and skills-based education, not just degrees.
- End protectionist tariffs that raise prices for consumers and penalize supply chain resilience.
Ginn states the obvious, an obvious pretty much automatically dismissed by those who insist they know better: “America doesn’t need more central planning. It needs more freedom.”
And “industrial policy,” as we have repeatedly noted, is anathema to that freedom – a freedom so part and parcel to a free and prospering economy.
Colin McNickle is communications and marketing director at the Allegheny Institute for Public Policy (cmcnickle@alleghenyinstitute.org).
