Call it industrial policy, state intervention, or marketcrafting: governments have realized that market forces alone won’t address economic security and supply chain risks. Meanwhile, LNG volatility spikes, offshore wind investments hit snags, and the White House targets investment in Chinese tech. Plus: global food turmoil.
This week marked the first anniversary of America’s CHIPS Act, and this coming Wednesday will be one year since the Inflation Reduction Act was signed into law.
The blockbuster legislations have unleashed a surge in US spending in manufacturing: some 230 billion USD in manufacturing investments and over 87,000 new jobs created, by one count. It’s not for nothing that the World Bank recently declared industrial policy’s official comeback.
But pushback is afoot, too. The EU’s recently retired chief competition economist Pierre Régibeau last week dismissed concerns about the hollowing out of Europe’s heavy industry.
“If it disappears, so be it,” he said, adding that safeguarding the bloc’s industrial base with taxpayer money is “stupid” and natural market forces will make sure any “shocks are absorbed.”
The EU’s vice president Margaritis Schinas wasn’t pleased: “It took a pandemic and now a war to realize that Europe needs a solid industrial capacity and strategic autonomy,” he wrote.
Plus, new economic research on industrial policy is urging a reassessment of the mainstream orthodox cannon, which has long faulted government intervention for as wasteful and distortionary.
The new literature is “much more favorable to industrial policy, tending to find that such policies…have often led to large, seemingly beneficial long-term effects in the structure of economic activity,” writes Harvard’s Dani Rodrik.
The debate over industrial policy is far from settled. One thing is clear, though: the world’s second-largest economy continues to pursue state interventions—with massive distortionary effects for everyone else.