Podcast: Inside U.S. Industrial Policy and Operation Warp Speed, With David Adler

Industrial policy can produce great technological innovations to address major challenges for society. A perfect example is Operation Warp Speed, which has saved millions of lives during the COVID-19 pandemic. Rob and Jackie sat down with David Adler, an adviser on industrial strategy at the Common Good Foundation in the United Kingdom and author of “Inside Operation Warp Speed: A New Model for Industrial Policy,” published in the summer issue of the American Affairs Journal, to discuss lessons we can draw from the success of Operation Warp Speed to strengthen U.S. industrial policy in the future.

Mentioned

• David Adler, “Inside Operation Warp Speed: A New Model for Industrial Policy,” American Affairs Journal 5, no. 2 (2021).
• Richard Lipsey, Kenneth I. Carlaw, Clifford T. Bekar, Economic Transformations: General Purpose Technologies and Long-Term Economic Growth (Oxford University Press, 2005).
• Erica Fuchs, “Cloning DARPA Successfully,” Issues in Science and Technology 26, no. 1 (2009).
• William B. Bonvillian, The DARPA Model for Transformative Technologies - Perspectives on the U.S. Defense Advanced Research Projects Agency (Cambridge: Open Book Publishers, 2020).

Related

Stephen Ezell, “Moore’s Law Under Attack: The Impact of China’s Policies on Global Semiconductor Innovation“ (ITIF, 2021).

• Robert D. Atkinson, “No Adopting an Industrial Policy Doesn’t Mean We’re Emulating China“ American Compass, 2021.
• Stephen Ezell, “TRIPS Waiver on COVID-19 IP Rights Wouldn’t Help Vaccine Access; It Would Just Harm Innovation“ (ITIF, 2021).

Auto-Transcript

Rob Atkinson: Welcome to Innovation Files. I’m Rob Atkinson, founder, and president of the Information Technology and Innovation Foundation, and we’re a DC-based think tank that works on technology policy.

Jackie Whisman: And I’m Jackie Whisman. I handle outreach at ITIF, which I’m proud to say is the world’s top-ranked think tank for science and technology policy.

Rob Atkinson: This podcast is about the kinds of issues we cover in ITIF, broad economics and innovations, specific policy and regulatory questions about new technology. Today, we’re talking about industrial policy, my favorite topic, and the lessons that we can learn from Operation Warp Speed. As most of you know, it’s a partnership between US government agencies and the private sector to develop a COVID-19 vaccine.

Jackie Whisman: And as we all know now, millions of lives were saved thanks to this project and Operation Warp Speed, which we’ll refer to as OWS going forward, is considered a triumph of public health policy.

Rob Atkinson: And I’d like to talk today about how OWS demonstrated the strength of our industrial policy. It showed that we can accomplish amazing things, technologically and industrially, when we have an urgent need to tackle the seemingly impossible technological challenge.

Jackie Whisman: We’re going to talk to David Adler. He’s an advisor on industrial strategy at the Common Good Foundation in the UK. But we’re going to talk to him specifically about his article in the summer issue of American Affairs Journal that was titled, Inside Operation Warp Speed: A New Model for Industrial Policy. So let’s get to it. Welcome, David.

David Adler: Hi. Thanks for having me on.

Jackie Whisman: So why did Operation Warp Speed work as well as it did?

David Adler: I think it’s a multi-factor approach. There are many things you have to look at, but the larger thrust is the US developmental state still exists and can get things done, as you said in the intro, when it needs to. Looking at a few key elements, I think one key thing was a partnership with the private sector, but that’s such a generic term, that it was the way the partnership was structured. And in this case, the partnership was structured with the federal government in charge, overseeing things, rather than letting an external management consultant try and run things badly into the ground.

Another element of the partnership that was key was there was competition. So everything was not funded to a single entity or a single corporation, which you know, is a recipe for stagnation. So it involved competition. And then, I could go on and on. There was a lot of expertise there within Warp Speed, a lot of competency within the government. But in a nutshell, the point is the US can do industrial policy when it needs to, and it can also get past some financing hurdles is another element here that’s required to scale up new technology.

Rob Atkinson: So you mentioned a couple of factors, like having the government play a key role, having competition and all. It reminds me of the book, one of my favorite books of all time, by my favorite economist, Dick Lipsey. Well, David, you listed a number of factors that allowed that to be successful. And it reminds me, we hear this all the time. You hear it, I hear it, “Oh, well the government doesn’t know how to do industrial policy. It always screws it up.” And yet, in reality, people who studied these program, not just Operation Warp Speed, but other programs that the US government or other governments have done to drive technological breakthrough or industrial capacity, have shown that there’s a set of lessons you can learn, and if you follow those lessons, you have a high chance of success.

Rob Atkinson: My favorite economist is a Canadian economist, Richard Lipsey, and in his book, General Purpose Technologies and Long-Term Economic Transformation, he listed at the end of his book a whole set of lessons that places have learned, that scholars have learned from industrial policy. And that’s what you did in your book and in your great article, but you looked at it specifically in terms of Warp Speed. Why do you think that we succeeded when you see a lot of other countries that did not, the UK AstraZeneca didn’t really work that well, the French vaccine failed miserably. What was it about the US that allowed us to, and the Chinese vaccine is not very effective. Why did we do this so well?

David Adler: Well, on a personal note, I’m actually vaccinated with AstraZeneca, so I hope you’re wrong. But I would say the UK actually did their... They were up there with US in terms of being successful, ultimately, and they’ve-

Rob Atkinson: My criticism of AstraZeneca was the way that they had did the license. Maybe talk about that. The way they did the licensing, and they were like, “Well, you can’t make any money on this.” And so, AstraZeneca went along with Oxford, but the Oxford scientists were such, I don’t know, ideologues, they didn’t believe in intellectual property, that it didn’t really give them enough incentives to do this as broadly as they should’ve done it, in my opinion. I wasn’t discriminating against-

David Adler: We can… That’s called a viral vector vaccine. It actually uses a chimpanzee virus to deliver the spike protein. There’s a CH in the formal name of the AstraZeneca. So it’s a different vaccine format than mRNA. But why did the US do well? I think, frankly, because it still leads in science and technology.

And specifically, it’s the role of DARPA in furthering and prototyping and helping transition some early ideas from science technology into something more pragmatic. So the US still has very strong advantages, but we can talk, if you want to take a negative spin, how Warp Speed highlighted some of the weaknesses and Warp Speed overcame that. So it both highlights the strengths and the weaknesses of the US system.

Jackie Whisman: I think we should. I also wanted to point out that David’s article actually does talk about how we did have a little bit of a leg up research-wise with the mRNA vaccine, and that might’ve helped roll it out quicker. So maybe as you follow up...

David Adler: Sure. So, just to talk a little about the intellectual history here, the US did basic science research at the University of Pennsylvania in furthering mRNA as a therapeutic idea. There’s parallel research, some of it done in Canada, about lipidization, of how you can inject mRNA into a fat molecule so it can be delivered to the body in a way that does not get destroyed before it actually reaches a cell. So that’s basic advanced research, and the US has always been very good at that, and the US continues to fund money into that.

And that’s usually the end of the argument, except for organizations like ITIF. Everyone keeps saying, “Well, we just need more basic research and that will solve everything.” The answer is that most certainly will not solve everything. The US has huge problems translating this research into commercial products. In this case, there was an intervening institution, DARPA, the Defense Advanced Research Projects Agency, which was aware of this mRNA research and said, “Oh, that would be an interesting idea maybe to use it for vaccines.” That you could program the body to produce, well, not antibodies, to produce an antigen that would trigger an antibody.

So what the story here is, people within DARPA took this concept of basic science and turned it into something that was more of a feasible prototype that could work. So that was the transition lacking for many, many, many, many US inventions. However, and we can talk more about DARPA and Bill Bonvillian’s book on DARPA. That’s your board member who has, I think, maybe the definitive book on DARPA and innovation. It’s about a thousand pages, but every page is readable, actually.

Rob Atkinson: Well, David, you know what? By the way, the other person who’s done great work on DARPA is our colleague, Erica Fuchs, at Carnegie Mellon, wrote a very definitive analysis of DARPA. But we wrote something recently, just a very short, it might’ve even been a blog, where we looked at DARPA funding on a per-GDP basis. And DARPA funding has gone down.

So it’s very strange and bizarre when a lot of other countries are talking about they want their own DARPA. I know the UK’s talking about that. The Germans, I think, have set it up or are setting it up. And yet, we’re really, in inflation-adjusted dollars, we’re not funding DARPA at the level we should. But still, as you noted, that was a big reason why we were successful, so we need to do more of that.

David Adler: Well, I think it’s interesting if you look at the histories of Warp Speed, and let’s just call it the popular press, that sounds condescending, the Washington Post, et cetera, they say, well, there’s basic science research in labs, University of Pennsylvania, and then, the vaccine somehow mysteriously appeared. The Wall Street Journal will take a different point of view and they’ll go, “Well, the magic of the market did it.” But the missing intervention of DARPA is, for some reason, not part of the popular history.

So we’re worried about lack of funding for places like DARPA, it doesn’t fit well into current US ideological battles, I think is the key problem here. It doesn’t resonate with the free market right, nor does that resonate with the old idea that you just fund more science. So it’s marooned and that is one reason why the US just can’t or won’t fund for the DARPA. But I need to say that DARPA was necessary, but insufficient to get across the finish line here. So to continue with the intellectual, the history of Warp Speed will make this all clear.

So DARPA showed the prototypes that you could work using mRNA to create vaccines for viruses. That work was done very, very early, as early as 2012 or ’13. DARPA, in fact, helped fund Moderna, whose name stands for mRNA, hence the name Moderna. So DARPA began funding early prototype work, but to actually create a commercially available vaccine requires a billion dollars, largely because of clinical trials. So DARPA could spend 20 or 30 million to show that a prototype worked, but they could not get a vaccine out there to the public.

So there was this technology sitting there and nothing was happening. Therefore, Warp Speed had that technology to turn to when the time came and could take the billions of dollars necessary to do the heavy lifting, to scale up DARPA’s innovation. If you want to make it a negative way of looking at this is, if there were no Warp Speed, the US system at this point is not capable of scaling up innovations like that.

And that is a problem across industry after industry after industry, including, say, an area of interest to ITIF, like new types of batteries. US creates these new ideas, the US can even prototype them, but when it comes time to scale them, there is a missing financing mechanism and missing institutions to make that happen.

Jackie Whisman: I thought that that was a really important part of your article, too. You called it ridiculous to think that we could be scaling on this level across industries. Because, I mean, honestly, that was the first thing I thought about was, “Well, if we can get this COVID-19 vaccination out, why can’t we do it for other illnesses or other industries?”

David Adler: Why can’t we? First of all, there’s no recognition that there’s a problem here. It’s not part of the popular discussion. People say, “Oh well, venture capital will take care of it.” It’s not part of mainstream economics. Mainstream economics is so abstract. There’s no financial sector, or there was not in DSGE models before the financial crisis. You can’t turn to economists to know this. They don’t have the slightest idea of what you’re talking about. To people in financial services, they’re working with the system they have. But to make a systemic change is a little bit, the US is a little bit sclerotic here.

I actually would like to quote here something from President Xi of China. The speech was April, 2020, where he actually mentions the problem of scale-up and commercialization, and he says the government needs to play a planning role, but enterprises can still take the main commercial role. And here’s the quote, “They can work hard to resolve the organic connection problem of basic research first mile and the achievement commercialization and market application last mile, and forge innovation change and value chains between industry and research institutions.”

What is the point of this? Why am I mentioning this? Because it means President Xi is well aware there are problems connecting basic research to market commercialization. And yes, I understand that ITIF has endorsed bills, like Senator Coons, Senator Rubio. There are senators who are aware of some of these issues, but this is not part of the national conversation in the US. It is part of the national conversation in China.

Rob Atkinson: Well, also, David, it’s not just a China problem, as you note. This is a core fundamental problem of a technologically-innovative economy. How do you take these discoveries, these inventions, and how do you get them to the marketplace? The other problem that we haven’t talked about is the short-term nature of capital markets, the unwillingness of many companies to put the big capital investments they need to bring something to market, or the fact that other countries provide incentives.

A classic case of that right now is semiconductors, where you see other countries putting massive amounts of money to bring new semiconductor technology into the marketplace with FABs, and we haven’t done that. Now, thankfully, we have the CHIPS Act, which is, hopefully, going to get some real money and to support FAB development and building in the US. I think it really does go to your point about economists, they simply don’t understand this notion. In their mind, if there’s a market, it should work. So if you had a vaccine, mRNA possibility, then it just should happen automatically. That’s what markets do.

David Adler: Right. Well, actually, there are many other DARPA innovations that did not scale successfully. For instance, DARPA had made huge advances in drones. Drones are pretty much a Chinese industry. So the idea that the US could create something and it will enter the marketplace, this idea has been failing for really a long time. There is a mention in my article of looking at US solar panels in the ‘70s where the US began making advances in solar panels, but then it was left up to the market to implement, and it didn’t happen.

So there’s this basic flaw in the American system, and it’s hard to make the institutional changes necessary. On the upside, Warp Speed showed that you do not need to import some whole new institution from a foreign country, you don’t need a whole different financing mechanism. The US government had the flexibility of creating a cross-agency structure that worked to solve this problem. So in a way, that is a key organizational happy note here. US is able to solve the problem.

Rob Atkinson: Yeah. I mean, to that point, the US was able to solve the problem for a simple reason. Shouldn’t say simple reason, and that reason was that there was a national, there was a global crisis, and there were like, “Well, we better act.” And even if you have this ideological view of the market does everything, well, it wasn’t going to do it in time that we needed.

And so, how do we build that sense of urgency into all these other areas that the US is simply going to have to do something on, or else we will end up like the UK economy, which is a de-industrialized economy that’s struggling, has financial services and a few other things, but we cannot be that economy. And yet, that’s the track that I believe we’re on.

David Adler: Well, in terms of adding that sense of urgency, you’ve said this to me, the China rivalry is one element that, the military threat, even though I really don’t think people in the US care at all, a lot of key influencers, if you will. In fact, the whole concept of influencers are people not focused on potential catastrophe, militarily. Also, in that speech by President Xi, he talks about the need to create Assassin’s Mace technologies, and that term means technologies that can wipe out other technologies that no one saw coming. So there is the military angle.

There’s the jobs angle I think that has resonance to the public, but it is not necessarily resonance with policymakers. Let’s take a negative note here, we could talk about how the US is trying to outsource or offshore its mRMA technology as quickly as it can, usually under ideological pressure, rather than building factories at home to create more vaccines globally. So to rephrase that, what I’m trying to say is, yeah, the world actually does need to be vaccinated against COVID.

The question is, and the US leads in mRMA technology, therefore should the US build new factories, employing Americans, helping to maintain control of this technology to vaccinate the world? Or, should the US just give away its technology to other countries and to let them do it? And the Biden administration seems split, but when push comes to shove, their idea is that we’ll just give it away. The point here is that in most countries, including in China, post-Mao, good jobs were always overrode other considerations. That’s not the case in United States. Because people-

Rob Atkinson: There was a recent decision, I can’t remember whether it was AID or somebody, who I believe they gave South Africa a grant to build a vaccine facility.

David Adler: Yeah, it was... Go ahead.

Rob Atkinson: Right, why don’t we build the vaccine facility in the US, employ people and then give the vaccine to developing countries for free? I don’t get why that didn’t happen.

David Adler: I don’t get why it didn’t either. I think it should be an argument that would politically resonate. But I suppose with the US policy dictated by NGOs, dominated by, let’s be a little aggressive here, wealthy widows. They don’t care. I think critical race theory actually is some key insights here about positionality and the position of people who are driving advocacy organizations. They are no way impacted by decisions like this. Their funding is secure. It may even go up, in fact, if they do that. So in a way the US policy has been captured and control by advocacy-based NGOs who could care less about not just American defense, but American jobs.

Rob Atkinson: Well, I couldn’t agree more with you. I think one of the big fallacies for a lot of NGOs is this view that there’s no different between an American worker and a foreign worker. We’re all the proletariat. And that’s fine as long as you say that you’re not an American or that you’re not a Brit or that you’re not a Canadian. Nationality still matters, at least I hope it still matters, that US policymakers should put the US interests first. And if we can build a factory, get all that technical expertise and knowledge, and then, as you said, employ American workers and give away the vaccine for free, that’s a whole lot better than forced licensing and taking away the patent rights. That’s to me the big debate, that broad debate that we’re in now.

David Adler: Well, it’s bizarre there even is a debate. I think your message is one that politically resonates and needs to get out there. But I would say key NGO activists don’t share that point of view. And hence, they always were people on a global pandemic demands a global response. WHO uses that as well. And that’s a truism, you cannot deny that, but that has different meanings. In the United States it means what you just said, meaning we’re not going to lead, we’re not going to develop these vaccines, we’re going to give it away. Where other countries use the same thing to mean we’re going to take control and we’re going to... Let’s just go back to Ursula von der Leyen.

Jackie Whisman: Might as well.

David Adler: Also.... Might as well. And she, when it turns out that European factories were making a vaccine that’d been licensed to the UK, under a standard contractual wrong, she’s like, “Well, we’re just going to impose what we call an export transparency mechanism,” meaning we’re not going to give you the vaccines, we’re going to take them for ourselves. And why are we doing this? The global common good.” Because a global pandemic demands a global response. So that phrase is open to many different interpretations.

Rob Atkinson: Yeah. That explains a lot as to why the EU was so far behind us in getting vaccines. To me, one of the really interesting things about Warp Speed and your excellent, just really excellent article, David, was we put all the factors together that you need to put together. Early-stage basic research, the DARPA take it to that next level, bringing together producers, having the guaranteed contract. Also, though, allowing companies to make a profit and to protect intellectual property.

Yeah, one of the things that drives me crazy about this debate is people were saying, “Oh, well, Pfizer might make a profit.” What they’re forgetting is that there are a lot of companies globally, and some in the US, who put a lot of money into developing a vaccine and it failed. And so, everybody knows that. Every company who was building vaccines knows that there’s a chance they’re going to have a lot of money.

I was listening to one podcast about Pfizer doing this. I think it was Pfizer said, “Look, we’re going to spend a lot of money on this. It doesn’t make any difference. If it fails, it fails, that’s just the risk. But we need to do this to be a good global citizen.” But if you don’t let companies actually then make something more than the cost of capital after that, nobody’s going to invest in it.

David Adler: That’s true. But even for vaccines, Pfizer did not charge full market price, unlike Moderna. It’s a muffled price. It was not as aggressive in its pricing as some companies. AstraZeneca did it at cost. It got more public relations benefit. But there was a long-term motive, commercial motive, behind doing it at cost, which is the viral vector vaccines have many, many interesting applications down the road, say in terms of cancer. So they’re thinking ahead. This is looking forward. But if you give away their technology through the TRIPS waiver, then that whole innovation is just thrown out the window. And it would be a mistake on their part to assume they would maintain, could continue to further develop vaccines. So that’s really not part of the discussion, really, either.

Rob Atkinson: Yeah, no, absolutely. It’s not strange in the sense of, it’s only strange if you think that the people on this other side are focused on building up US capabilities, because that’s exactly the opposite of what’s going to happen.

David Adler: Right. We should bring in your co-author, Michael Lind, here who talks about often financial lies. Economies tend to start making decisions like that, because people in the financial sector whose profits derived from the financial sector, don’t really need this to happen for their own well-being.

Rob Atkinson: Absolutely. Yeah, absolutely.

Jackie Whisman: Maybe a good way to close would be to talk a little bit about some of the applications beyond vaccines that you could see this Operation Warp Speed type model benefiting.

David Adler: Well, I think it could apply to any advanced technology in the US that’s having problems scaling up. So all the fundamental research universities needs to be translated and brought to the market in different ways. So across the board, from green technologies to new types of batteries, to new transportation models, everywhere where the US is stagnating, which is pretty much most industries, except maybe pharma, it could be applied. The question remains, I still think it’s a political and media problem. This is not a high priority issue.

Even with Warp Speed’s success, somehow that success isn’t celebrated. It seemed to fall behind the cracks. And we got involved in debates about wear a mask or don’t wear a mask, rather than wait, how did this happen? How can we replicate it? There’s not a lot of rational thought, and so, there’s a lot of ideological thought. And though I’d like to bring this up, even if it’s off case, if you look at key economists, like Paul Krugman, about what is the moral of the story? This is a New York Times op ed. He wrote, “Is there more to this story?” And he’s like, “Yes.”

The case of vaccine production illustrates the positive side of globalization. These miracle vaccines would be harder to produce in any one country, even when it starts in the United States. A global market made it possible deliver to save thousands of lives as you read this. So the US remains intensely ideological right now, rather than empirical, where I’m going to bring up China again. China’s strength, apparently, is they can do a lot of experimentation, and if something works, they scale it up. The US right now seems to be too rigid and too, frankly, ideological to make such a move. Maybe we need things to calm down a little bit, and a little bit, I’m sure if we focus-

Rob Atkinson: So, David, I’m shocked that you would call Paul Krugman an ideologue. I mean, I am just shocked.

David Adler: Well, he’s a lot more than ideologue.

Rob Atkinson: I’m, of course, kidding.

David Adler: He’s a…

Rob Atkinson: I have written so much against Paul Krugman-

David Adler: No, no.

Rob Atkinson: ... He drives me crazy, the stuff he says.

David Adler: ...Well, he’s extraordinarily important. He’s more than representative, he’s a leading thought leader, we’ll say, so to speak, in US conventional wisdom. So, he’s representative of current US thinking, and eventually, the US... Actually, it’s not Warp Speed. After the financial crisis, I’m surprised there was not a movement to defund economics or his type of economics, given the poor record of economists, not just in anticipating the crisis, but their models, as I said, do not have a financial sector in them. That’s how weak their models are. So why this field continues to be fully-funded and dominant is questionable, where I would instead fund Bill Bonvillian’s MIT type movement. There needs to be a reallocation of resources within universities. Defund economics, refund types of political science.

Jackie Whisman: I think Bill would love that idea.

David Adler: No, but it’s pragmatic. It needs to be done.

Rob Atkinson: No, absolutely. We should close here. I wrote something a few years ago saying that the next president, when they appoint somebody to be head of the Council of Economic Advisors, they shouldn’t appoint economists.

David Adler: Well, we need to close here, but traditionally, economists, really before the ‘70s, they were not really taken very seriously. They did some arcane things, maybe a little interest rate fiddling. But when the economy is running well, everyone knew not to trust an economist. They just did their own hot-house obscure feel, and suddenly, they’re the only people studying the area where there is a problem, but they don’t have the answers.

Concluding on Warp Speed, though the country, you must admit is extremely glum. Warp Speed was a success. The success is obvious, but should be celebrated, and the model can and should be used to other industries. It just needs a little bit more media attention, frankly, and political attention.

Rob Atkinson: So this is we’re really mediocre. We were a great NBA basketball team. We’ve been mediocre now, but every once in a while, if we get the right plays or the right motivation, we can go in and we can beat any team in the world and dominate. But then we forget about that and we go back to saying, “Well, if we just advertise more or sell more, we’ll be great again.” And to me, David, what’s so important about the message you had is, there’s a real set of lessons here that policymakers need to embrace. On the positive note, some of that seems to be happening in Congress, particularly the Senate right now. On that note, David, thank you so much for being here with us.

David Adler: Well, my final line I like to use, it’s time the US learned from its successes.

Rob Atkinson: I like that.

Jackie Whisman: Well, that is it for this week. If you liked it, please be sure to rate us and subscribe, feel free to email show ideas or questions to [email protected]. You can find show notes and sign up for our weekly email newsletter on our website, itif.org. Follow us on Twitter, Facebook and LinkedIn @ITIFdc.

Rob Atkinson: We have more episodes and great guests lined up. New episodes will drop every other Monday, so we hope you’ll continue to tune in.

Jackie Whisman: Talk to you soon.