The economy is an ecosystem, and industrial policy will help that ecosystem
Back in the 1980s, writers such as Robert Reich were advocating what was called an “industrial policy” — that is, the government should intervene in the economy and explicitly help a particular industry or set of industries in order to make them more competitive.
Yes, I know this sounds like “picking winners,” except that governments have been doing this successfully for hundreds of years. Consider it as the equivalent of the Park Service being stewards of a national park, intervening when necessary to keep the ecosystem healthy. Now, think of the economy as an ecosystem, and think of industrial policy as a way to keep the economy healthy.
Robert Kuttner, writing at Huffington Post, makes the argument:
American commercial leadership in aerospace is no naturally occurring phenomenon. It reflects trillions of dollars of subsidy from the Pentagon and from NASA. Likewise, U.S. dominance in pharmaceuticals is the result of government subsidy of basic research, favorable patent treatment, and the fact that the American consumer of prescription drugs is made to overpay, giving the industry exorbitant profits to plow back into research. Throwing $700 billion at America’s wounded banks is also an industrial policy.
So if we can have implicit industrial policies for these industries, why not explicit policies to rebuild our auto industry, our steel industry, our machine tool industry, and the industries of the next century such as green energy and high-speed rail? And why not devise some clear standards for which industries deserve help, and why, and what they owe America in return?
We need to move in this direction anyway; think of it as the “public investment” part of the public investment, regulation, and carbon-pricing three-legged stool of climate-change mitigation policy. And it is probably the only way we’re going to turn around the American economy. The economy is the ecosystem, and ecosystem is the economy.