At the very end of 2012, I wrote a piece for MIT Technology Review (paywall) about an interesting schism in Democratic economic policy circles. Gene Sperling had replaced Larry Summers as director of the National Economic Council in early 2011, and over the next couple of years the Obama administration seemed to talk more about industrial policy, although they didn’t call it that.
The term was “advanced manufacturing.”
But in early 2012, Christina Romer, former chair of Obama’s Council of Economic Advisers, questioned the administration’s manufacturing agenda publicly, writing in The New York Times:
AS an economic historian, I appreciate what manufacturing has contributed to the United States. It was the engine of growth that allowed us to win two world wars and provided millions of families with a ticket to the middle class. But public policy needs to go beyond sentiment and history. It should be based on hard evidence of market failures, and reliable data on the proposals’ impact on jobs and income inequality. So far, a persuasive case for a manufacturing policy remains to be made, while that for many other economic policies is well established.
A survey of economists from around the same time confirmed that the conventional wisdom in the field was firmly against intervention to boost manufacturing.
I didn’t get to interview the players in this debate, but my piece highlighted a group of policy wonks willing to defend a certain sort of industrial policy. I talked to Mark Muro of The Brookings Metropolitan Program, which had released research emphasizing the importance of manufacturing, and Rob Atkinson of ITIF, a think tank promoting an aggressive innovation policy agenda.
Not much came of this debate, at least that I could see. But perhaps a broader warming to some revised form of industrial policy is now perceptible?
Enter economist Noah Smith at Bloomberg View, writing about new ideas in economic growth. Neoliberalism still has its adherents, but what’s the competition?
Looking around, I see the glimmer of a new idea forming. I’m tentatively calling it “New Industrialism.” Its sources are varied — they include liberal think tanks, Silicon Valley thought leaders and various economists. But the central idea is to reform the financial system and government policy to boost business investment.
Business investment — buying equipment, building buildings, training employees, doing research, etc. — is key to growth. It’s also the most volatile component of the economy, meaning that when investment booms, everything is good. The problem is that we have very little idea of how to get businesses to invest more.
My Tech Review story called this group the “institutionalists,” which one of my sources coined when pressed to distinguish his faction. But “New Industrialism” is far clearer.
So who’s a part of this agenda? Smith mentions The Roosevelt Institute’s excellent reports on short-termism; ITIF and Brookings Metro belong on the list; we’ve published a lot at HBR that I think would count (a few examples here, here, here, here).
And one could argue that Brad DeLong and Stephen Cohen’s forthcoming book on Hamiltonian economic policy (my employer is the publisher) is in this conversation, except arguing that such an agenda isn’t new at all. Here’s their recent Fortune piece:
Hamilton’s system was constructed of four drivers that reinforced one another, not just economically but politically: high tariffs; high spending on infrastructure; assumption of the states’ debts by the federal government; and a central bank.
As Smith writes, “New Industrialism… is not yet mainstream,” and frankly there’s still a lot to be fleshed out before we can even ask whether such an agenda is superior to the alternatives. But he concludes that “it could be just the thing we need to fix the holes in our neoliberal growth policy.” He may just be right.