Three Cheers for Industrial Policy

Anyone involved in business or economic policy who has spent time in Washington knows you're not supposed to utter the term industrial policy. It’s verboten—like Voldemort, who shall not be named. Try saying it in a meeting. The response is always a nervous “We can’t use that term.” Say competitiveness or innovation policy instead.

Weird. Why?

First, what is industrial policy? Leaving aside what its opponents claim, industrial policy is any policy explicitly focused on one or more specific industries. Using this definition, policies to foster better and more affordable childcare are industrial policy; after all, childcare is an industry. Clean energy policy is industrial policy. Proposals to increase oil drilling are industrial policy.

But that’s not what ITIF means. We mean specific policies that support specific industries in their global competitiveness battles.

Free-market types love to tar the term by asserting that industrial policy must be implemented by incompetent GS-12 bureaucrats picking firms backed by crony capitalists. This is religious doctrine for think tanks like the Peterson Institute for International Economics, Cato Institute, American Action Forum, Council on Foreign Relations, American Enterprise Institute, and many more. But it’s telling that they virtually never engage beyond straw-man arguments, relying mostly on platitudes like “markets work best.”

Why does speaking this truth to power matter? Because if something is taboo and cannot be named, actually doing it (and doing it well) becomes much harder. Case in point: The level of industrial policy sophistication in Washington—both in government and among outside experts—is, frankly, amateurish and shallow. What passes for industrial policy is usually hortatory, consisting of calls for more immigration, more science funding, and light-touch regulation. Serious, sector-specific analysis grounded in decades of scholarly research on industrial policy is almost entirely absent.

So why the fear and loathing of the term?

There are several reasons. One is that free-market advocates dislike the idea that any industry is more important than another. To them, potato chips, computer chips, what’s the difference? Even worse, they recoil at the idea of pointy-headed government bureaucrats “picking winners.” Yes, government can mismanage industrial policy, for example, by mandating daycare centers in federally supported chip fabs. But it can also get it right.

Another reason is the fear that it will be used to justify tariffs and protectionism. But Trump is proof that is not necessarily the case. He hates industrial policy, having even proposed eliminating CHIPS Act funding, but loves tariffs. If anything, good industrial policy reduces the need and demand for tariffs.

Finally, industrial policy formation and implementation require a very different set of skills and educational backgrounds than those possessed by most Washington policy experts. It’s not primarily rooted in public policy, economics, foreign affairs, law, or other traditional Washington disciplines. Rather, it draws from technology, business, planning, economic history, and related fields. Like any good profession, Washington’s economic and trade establishment resists displacement and irrelevance.

So, fellow advocates of industrial policy, join me in being outspoken. You have nothing to lose but your intellectual chains—and U.S. techno-economic survival to gain.