1980s Redux: Hillary Clinton and Industrial Policy

As Democrats look for big economic ideas, energy and the environment may spur new government subsidy and protectionism efforts.

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Quick quiz: What does Hillary Clinton think is a "great organizing principle" for the American economy? Increasing our standard of living? Maximizing economic growth and economic freedom, maybe? Putting a chicken in every pot, perhaps? Nope, none of those. In a speech to the Chicago Economic Club last spring, she suggested that climate change would be a cool concept to organize an economy around.

And if government is going to make climate change or energy independence or whatever an explicit "organizing principle" for an economy, it means a return to a once edgy concept from the 1980s: industrial policy—government favor and aid to certain "strategic" industries, whether through subsidies or trade barriers—in pursuit of some national goal. Democrats used to be all hot over this as their "big idea" to counter Reaganomics. As one national magazine described it back in 1983:

Former Vice President Walter Mondale talks vaguely of cooperation among government, business, and labor to "restructure whole industries." Sen. Gary Hart favors tax credits to help companies retrain workers, while Sen. Alan Cranston supports a government development bank that would give loans to basic industries like steel. The common theme of all the industrial-policy advocates is that the government must play a more active role in helping industries meet the challenge of foreign competition. . . . Democratic Congressman Stanley Lundine of New York has introduced legislation to set up a national industrial-development bank and a council composed of representatives from government, business, labor, and the public that would, among other things, suggest a strategy for targeting federal aid.

That was then. Today the talk is of "strategic energy" (Clinton) or "new energy economy" (John Edwards) funds financed and directed by Washington. But instead of an alternative to Reaganomics, Dems are presenting their new industrial-policy plans as an alternative to [Bill] Clintonomics, with its emphasis on markets and trade. (Clinton advisers Robert Reich and Laura Tyson were big industrial policy fans, though.) Here is a comment from liberal blogger Ezra Klein—a man with an apparent soft spot for command-and-control economics—on the subject: "Industrial policy has, in recent years, fallen into disrepute. . . . [But] the examples of China, India, and various parts of Europe (not to mention Japan) suggest that it can be deployed effectively. Given the rapidly deteriorating state of our own industrial base, this is an approach we could learn some lessons from."

It was the apparent success of Japan and its Ministry of International Trade and Industry in the 1970s and 1980s that really gave weight to the idea of industrial policy. But as William Lewis of the McKinsey Global Institute notes in his marvelous book The Power of Productivity, MITI's success is mostly myth.

Across a broad of range of manufacturing and service industries in Japan, there are only . . . two instances when MITI's intervention was a significant cause of good economic performance . . . the standardization of the machine tool industry in 1956 . . . and the requirement that to enter the Japanese market in the 1960s, IBM had to share its computer patents with Japanese companies. . . . However, these steps were a long way from the conventional view that MITI was identifying and supporting a broad array of "strategic" industries, and that this action was giving Japan a strategic economic advantage over the United States.

And it's easier to run an industrial policy when you are a developing economy playing catch-up rather than a leading-edge economy that relies on innovation for future growth. Picking the industries of the future is hard. Remember that the hot idea for the industry of the future back in the 1980s was robotics, not the Internet.


TAGS:
Clinton, Hillary
economics

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