Time for a rebranding of industrial policy?

If you'd like to get an immediate read on someone's politics, their age and where they are from just wander up to them and say 'industrial policy' or even use it in a sentence, like "There is a need for industrial policy in leading economies, just as much in developing economies". The reaction, usually extreme whether it is eye rolling, banging a shoe on the table or the sigh of the worn down, should tell you a lot.

This is a real problem. Right at the moment when we should be having a grown up debate on the role of the state in industrial development, how industry can play a role in national growth for G7 economies, and whether we've been misleading one another about the nature of competitiveness, the words act like a landmine. Step on them and boom there goes all rationality in the discussion you were having.

A great example of how the label of 'industrial policy' is misused and is divisive is contained within the recent PCAST report to the President on how to maintain the USA's claimed leadership in advanced manufacturing (full text of the report here). As Clyde Prestowitz has discussed in his Foreign Policy blog, the argument is well made that the US (akin to countries like the UK) had a lead in this area but that lead has been eroded. But then we get on to what to do about it.

According to the PCAST report -

"We do not believe that the solution is industrial policy, in which government invests in particular
companies or sectors. However, we strongly believe that the Nation requires a coherent innovation policy to ensure U.S. leadership support new technologies and approaches, and provide the basis for high-quality jobs for Americans in the manufacturing sector."

This to me is a misinterpretation of what industrial policy can be, as well as a desire to live in the narrative of the 1990s. As long as we have a strong innovation base (for many oversimplified to high R&D spending) all will be well. This ignores how the value chain operates, that research is not the preserve of the West, that R&D spending is an incredibly blunt measure of innovation, and that innovation without control will lead to nothing.

Overall the PCAST report is a depressing example of how old labels get in the way and that we have not advanced at all in our discussions on economic growth and renewal since the credit crisis in 2008. We are failing to shed ideas which do not apply in the current context and failing to adapt to the realities in front of us. Somehow we have to find a way to stop having old debates and move on.

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