Industrial policy has sharply divided the Right. National conservatives such as Oren Cass think America needs “public policy that encourages investment in particular sectors of the economy.” Many conservatives of a classical-liberal bent disagree. Commentators such as the Dispatch’s Jonah Goldberg and policy wonks such as the Cato Institute’s Scott Lincicome have forcefully argued against Uncle Sam picking winners and losers. The debate over whether the federal government should put its thumb on the scale of American manufacturing isn’t going away anytime soon — witness the public furor over the recent CHIPS Act and similar proposals.
Old-school conservatives are right to push back against national conservatives’ economic programs. Industrial policy is wasteful and ineffective and creates massive political graft bedsides. But there’s one claim free marketers should stop making: that industrial policy is impossible. On the contrary, it’s fully possible, which is why we should oppose it.
Advocates of industrial policy do not much care about whether it is economically efficient. Cass cheerfully admits industrial policy “has nothing to do with the most efficient allocation of resources.” It’s about boosting manufacturing employment and output for cultural (e.g., renewing blue-collar communities) and political (e.g., independence and supply chain security) reasons. Government can do this — though perhaps not at a trade-off we’d be willing to accept once we consider all the costs and benefits. But this is a very different claim than impossibility.
Classical liberal errors about industrial policy stem from a misreading of Ludwig von Mises’s and Friedrich Hayek’s seminal contributions to economics. Supposedly the same knowledge problem that plagues comprehensive economic planning applies to industrial policy, too. This is false. Mises and Hayek proved governments cannot plan economic efficiency because private property and markets are the sources of the knowledge necessary to “solve” the planning problem. But as we’ve seen, national conservatives have much more modest goals. They want more factory workers and more of what factory workers produce. Direct subsidies, tax credits, and similar policies are fully capable of achieving this.
That industrial policy is possible does not mean it is desirable. Opening the public purse to such schemes rarely yields a good return on investment. Instead, we’re stuck with an anemic manufacturing sector that sacrifices economic viability for political pull. In a recent letter to the editor, George Mason University economist Don Boudreaux warned America of the “high price” of adopting Chinese-style industrial policy, namely “firms and industries whose growth is artificially stymied.” Just so. As we’re seeing, China’s economy has a great many problems stemming from excessive top-down resource direction by the state. We shouldn’t be enthusiastic about this model.
Even if we accept national conservatives’ cultural critiques, industrial policy doesn’t look so hot. Presumably, the point of an American manufacturing revival is strengthening communities by giving ordinary families a hand up when dealing with corporate fat cats. Yet it wouldn’t be regular workers who would craft and implement these policies. It would be the very economic elites of whom national conservatives are so skeptical. Those policies would then be overseen by the administrative state, a class not exactly sympathetic to cultural conservatism. For those seeking to defend the American way of life, embracing industrial policy means forging the weapons their enemies will use against them.
We need to make the right arguments against industrial policy. Exaggerated claims about economic impossibility don’t persuade anyone. All they do is blunt the force of Mises’s and Hayek’s arguments about markets. Given some of the proposals coming from the Left these days, this is totally counterproductive. Listen to what industrial policy advocates have to say and the trade-offs they envision. When those are made clear, we can see industrial policy for what it is: a misguided retreat from the system of free enterprise that made America rich.
Alexander William Salter is an economics professor in the Rawls College of Business at Texas Tech University.
