Why We Need an Industrial Policy
I’ve long said that, after the big military-industrial-complex states outside of DC (which have, after all, benefited from 10 years of big stimulus), MI is the state that has most benefited from Obama’s economic policies. Not only did Obama bail out GM and Chrysler (and therefore many of the contractors that supply them), but he invested money in new auto-related killer apps, like battery technology.
Lo and behold, such measures have worked to improve MI’s job-creation. It leads all states in job creation improvement last year (though obviously not job creation–the commodity and MIC states top that list).
States showing the most improvement in job market conditions between 2009 and 2010 included the long-depressed manufacturing states of Michigan, Ohio, and Pennsylvania — likely reflecting the significant improvement in U.S. manufacturing last year. Also among the most improved were 5 of the 10 states with the worst job markets in 2009, giving them the most room to improve: Oregon, Delaware, Arizona, Minnesota, along with Michigan. Reflecting the growth of the federal government, the District of Columbia was not only the second-best job market but also the second-most improved job market in 2010.
Compare that to the clusterfuck states that have gotten no such investments. Nevada remains the worst state for job creation (or in its case, loss), and California is not far behind (though Arizona is on the top 10 most improved list).
Mind you, the benefits of the auto bailout will be challenged this year as Midwestern states, struggling to recover, cut government jobs. And I maintain that we won’t know whether the bailout “worked” for another 3 years (because of the development cycle in the industry).
But for the moment it looks like just three things have worked to create jobs: the MIC, QE2 and other policies favoring commodities, and actual industrial policy.
As we’ve debated before, the US very much has an industrial policy, something it avoids admitting to because it sounds so old European and “socialist” (a term the American press no longer understands beyond the emotive, “icky”). The Japanese, China, the EU, Russia have no such qualms. As you’ve pointed out, ours is called the military-industrial-intelligence-congressional complex.
The fruits of that policy are distributed very narrowly, to an elite group of politicians, industrialists and “service” providers. The roots that feed that fruit still come from average taxpayers, especially so as during the last ten years, both the percentage of taxes paid and the amount of actual money paid in taxes by corporations and the wealthiest individuals, families and trusts has dwindled to Gilded Age amounts.
You are rightly advocating a more legitimate industrial or economic policy that employs a broader tax base to grown more fruit and to spread its seeds more widely. A principal purpose would be to improve the lot of average Americans, their local communities and the states they comprise. What a marvelous idea.
A major issue that needs tackling is the “modern” business model that views domestic US employment (other than that of top executives) as anathema to corporate interests. Allied to that is the ruinous spread of the Jeffrey Skilling ethical model, which considers business ethics a contradiction in terms. That model says any business activity is legitimate until the government catches it, stops it, and penalizes it far beyond any short-term gain accruing from it.
That model is spreading; like the ebola virus, it quickly kills its hosts. It will have to be contained if a more publicly explicit economic policy is to be something other than another government-created, taxpayer-funded teat on which the biggest corporations, their lobbyists and their political retainers suckle.
Regarding the Jeffery Skilling model of business “ethics”, it works because for over a decade the USG has failed to regulate business excesses: mountaintop mining, putrified and radioactive waste water from natural gas fracking, oligopolistic and monopolistic industries, wholesale violations of age and sex discrimination and workplace safety rules, ad nauseum.
Even the NYT’s Frank Rich acknowledges this and argues against it. Meanwhile, the GOP-controlled House and a score of state governors are doubling down on that same agenda, with surprisingly widespread support from Democrats, though Bill Daley’s status as a “Democrat” is a ruse, a false fame for his family’s aristocratic dominance of Chicago politics for over half a century.
To anyone who wants to look at the actual numbers from direct government investment, the results are clear: it worked, and it worked a hell of a lot better than anyone hoped.
But no one in a position of significance seems to want to look…or perhaps it would be better to say no one wants to admit that the “bailout” and direct investment WORKED (note this article on the bailout.)
I’ve said it before, I’ll say it again: The Democratic Party’s marketing efforts suck. They need to yell it loud and, if necessary, rudely. The media doesn’t acknowledge the program’s success, and the Dem leadership just walks away, mumbling to itself.
It’s all about JOBS, and the Dems, whatever else they’ve done/failed to do over the last two years, have promoted jobs far more than anyone thought would work. (As an added benefit, if the success of these programs is promoted non-stop and with sufficient volume, the ability to do more will be realized.)
They’ve sucked so consistently, badly, and obviously that I have gone beyond the “is it malice or incompetence?” phase into the “it doesn’t matter, but I’m betting on malice” phase.
Their loyalty is only to themselves and the power structure that serves them so well. The incident that finally brought that home to me was when Lamont won the CT primary for Senate and all the Big Name Dems came out in support of Lieberman. They could have come out for him during the race, but once the Democrats of CT had spoken, their job was to support the Dem candidate, not their buddy Joe. Who had a proven track record of being in it for himself. Remember, if SCOTUS hadn’t given the Presidency to Junior, Lieberman’s seat would have been filled by the Republican Governor of CT. If he’d given it up prior to running, it would have been filled by a Dem.
And I’ve never even lived in CT.
Thank you for this post. We must MUST radically change our industrial, trade, and development policies. It’s clear we have the ability, talent, university and research centers and labs, and startup/venture capital infrastructure to transform the world’s industries to a green, more sustainable, more efficient, and profitable business model.
So why not? I was thinking this morning, while listening to NPR about our exposure to ME oil imports, that if the Obama admin proposed a large, expensive research and industrial program that focuses on energy and conservation technology and production, an industrial bailout program if you will, they would be screamed down in congress and the media. We can’t afford this! Not now, maybe later! Socialism! etc.
Nobody’s hands are on the wheel of the ship of state, and it pisses me off. Sure it’s difficult, but it’s just not that hard!
That’s the biggest policy he promised during the primary that Hillary didn’t match (she, to her credit, proposed real fixes for the housing crisis). But the only hint of it is in the battery investments he made here and in a few other places around the country.
Even if we had taken all the money put to tax cuts (in HIS stimulus, to say nothing of the recent huge bailout of rich people) to energy and it’d be such a great boost to the economy.
OT – Pond scum floats:
Gonzales Chief Of Staff Kyle Sampson Gets His D.C. Law License
Three guesses – the first two don’t count: At which mega-firm is the ethics-challenged Kyle Sampson a partner? Hunton & Williams.
(h/t to you and Ryan Reilly @ TPM)
The states showing the most improvement also happen to be states that did not have big housing bubbles/busts. That factor is particularly apparent in the states doing the worst.
Would be difficult to sort out multiple causes.
You need to be careful to distinguish between bubbles and busts. We had a bust alright–we still are close to the worst in the country in terms of foreclosures. We just never bubbled before we busted.
But trust me, the housing crisis is still ruining a lot of people’s lives and productivity to society here.
Didn’t realize that you had a bust without a bubble. Thanks for the info.
So why did MI reward those who were in favor of letting the automakers fail? How many Republican gains were made? I get that the Dems don’t really stand for anything, but the auto bailout was one of the few genuinely successful Obama initiatives. Apparently michigan voters would have preferred their state be destroyed.
It didn’t help that we didn’t have a strong Gov candidate. I still think we would have been better with the charisma-impaired Cherry than Bernero, bc he could claim some credit as well (I’ve been a serious Granholm critic at times, but she has worked tirelessly to chase down jobs and realign our industry, but that’s only now paying off).
Did national Dems interfere in that primary as well? They seem to love that.
I’m glad you see fit to mention criticism of former Gov. Granholm (D). It was hard for her to feel empathy for working people. Seems she was a county attorney prior to her tenure? That would explain her dealings. She proposed- with Republicans- the notorious SB1227 with an additional 3% tax on teacher salaries for a retirement “trust fund” to “help stabilize the pension system.” This after pension losses due to Wall St and the corruption of Michigan politicians seeing fit to further corporate welfare all the while bashing personal welfare.
With Democrats like Granholm- labor was seriously injured. Some of her proposals were punishing. Currently they are in the courts- the other public employees just won theirs on the same issue. You can’t take away contract rights to help your corporate interests. She also moved Obama’s Race To The Bottom education agenda too- Detroit will now have 60 kids in a classroom with the newest “management” plan and it’s her guy. Who needs Republicans anyway? And don’t forget- the GM employees lost pension rights they had earned by contract- they walked away with what? Like it was their fault? And how many actually lost jobs in the newly mechanized restructuring? But the stock you say….
The Gallup Poll data is interesting, but MI employment decreased last year.
unadjusted nonfarm employment
Dec 2009 3871.1
Dec 2010 3855.9 -0.4%
http://www.milmi.org/
Do you have the population figures? Unlike the rest of the country, MI actually lost population.
There are no census population figures available year-to-year. In Michigan between 2000 and 2010 the population dropped 54,804 or -0.6 percent.
The MI civilian noninstitutional population figure (people 16 and above) is unavailable from the BLS. They do have figures for the civilian labor force, which are all persons in the civilian noninstitutional population classified as either employed or unemployed.
http://www.bls.gov/eag/eag.mi.htm
(These figures are constantly being revised which accounts for any differences.)
MI — Civilian labor force (thousands)
Dec 2009 4,812.5
Dec 2010 4,745.9 (-66,600)
The problem (as you know) is that this doesn’t include the people who have given up on employment.
Other MI figures from BLS: (thousands)
MI — employment
Dec 2009 4,217.2
Dec 2010 3,831.5 -385
MI — unemployment
Dec 2009 699.7
Dec 2010 662.9 -36.8
The employment + unemployment doesn’t = labor force — I don’t know why. Drives me nuts.
So employment dropped a bunch in one year and unemployment went down some, which indicates that a lot of people gave up, retired, or left the state.
unemployment rate Jan 2011
US 9.4
MI 11.7
unemployment rate change MI
Dec 2009 14.5
Dec 2010 11.7 -2.8
PS: Figures are not my thing so beware.
Not to worry, our new Republican Troglodyte Governor Snyder will kill of any semblance of a recovery here in Michigan. Republicans can’t help it, it’s in their DNA.
Everyone knows tax cuts create jobs and increase government revenues. I don’t understand why you failed to credit tax cuts with the economic improvement we see all around us, everywhere.
Pass me that bong. I need some of that ::-)
Of course, it’s all well and good that the car companies are back to making cars and money. If this tiny example of industrial policy can open a few of the minds of the “planning is bad” crowd, then it has been wildly successful. But it should not be treated as anything but a demonstration project. Here’s why.
It is very probably that we have reached global peak oil. We don’t know because the Saudis aren’t coming clean with their data, by no less than James Howard Kunstler says Peak oil has already occurred. This means we have about ten years to replaced the entire infrastructure of the USA so it can be powered by something else. We are making a few steps towards oil substitute but at the rate we are going, it would take 100 years. Making up the difference can ONLY be done by planners with Werner von Braun-like skills.
Oh, and one other thing, anyone who claims we can solve our problem for less than $3 trillion a year is blowing smoke.
I can’t make the link function work but you can see Kunstler’s argument here:
http://real-economics.blogspot.com/2011/02/has-world-reached-peak-oil.html
(If you want to see the sort of economic thinking common to the old industrial policy crowd, you are encouraged to wander around the rest of the blog.)
I was at the Harvard Business School alumni weekend a couple of years ago (my sister is an alumna) and attended a panel on the energy biz with a bunch of energy sector execs. Got to ask a question in which I pointed out that the world was changing with Brazil spending 30 years going to bagasse biofuel, France spending 30 years going to nuclear power, and Germany spending 20 years going to wind and solar but where was the US?
The unanimous response was “the US does not do industrial policy.” I guess these smart and accomplished people didn’t understand that no policy is a policy.
Since then, I’ve heard the CEO of GE Energy and the President of First Solar talk. Both of them were very clear about the necessity for a consistent energy policy. No policy there is also a policy and the only policy we have.
Defined “worked”.
Bailing out Detroit worked indeed, and I’m glad he did it. And I agree w/other posters wrt dems messaging shortcomings, but when MSM doesn’t pay attention to anything but BO’s “government takeover of economy”, what are you gon’a do?
Beyond that, what happened to US auto worker’s avg. wage?
WRT QE2, I don’t think it worked at all. Maybe in the sense a shot of 4pm caffeine might get you through the day. This was a very, very expensive shot of caffeine. Certainly QE did not in jump starting anything worthwhile (eg. bankers not so worthwhile IMO).
It’s certainly deprived a lot of fixed income seniors getting -0- returns into forseeable future, but who cares about them, right?
Massive amounts of QE 1/2 funds went to carry trades. It looks ok on some Fortune 500 balance sheets, but was a net drain on American economy as a whole: bad investment, little US Treasury return, no growth prospects to speak of, and overwhelmingly directed to offshore “stuff”.
US is investing over last 5 yrs less then 3% GDP into R/D… eg. new, badly needed stuff. The world is passing us by in new, much needed technologies. IMO, this is where BO’s QE should have gone: seeding the industries society needs pretty damn shortly… the stuff corp. America won’t do because there’s not the immediate return they can get from fraudulent WS bubbles.
I don’t think we’re ever going to recover anything close to national std of living we’ve enjoyed in recent decades as long as…
a) WS goes unreformed, whether by choice or by whip
or…
b) Fed gov bypasses WS and directly funds these things.
Just my $0.167 worth (and falling fast).
Here’s something concrete. My sister in Southern Michigan, at her wits end around Christmas, with the propane tank out, and the home insurance not paid, and other obligations unmet, with no relative in the know, gets a Christmas knock on the door, then a bountiful check from her ex-husband who had risked being sent to China by staying on with a auto supplier instead of taking a leaden parachute. The auto bailout had lead to a good year for his company and he had money to give.
Any high school kid knows you don’t create real wealth in a finance economy, but only in an industrial-manufacturing economy. Finance and manufacturing are mutually exclusive. The Dims won’t allow wide spread manufacturing because Wall Street doesn’t want it, Wall Street would be cutting its’ own throat. The poverty that started in the Great Lakes (manufacturing) region years ago is now rippling out to the other states. When the Great Lakes Region stops being the Rust Belt and actually starts growing (significantly), we will see the rest of the U.S. economy come back. This could take decades, if ever.
I would agree. A “financial economy” is about stripping wealth already created, taking it from the many who created it (better yet, preventing them from getting a piece of the pie in the first place), and giving it to a handful of MOTU.
In the Middle Ages, it was called having a religious war or fighting the noble next door to steal what he had. In that economy, there was no money, and no industries or service providers to speak of. No new wealth was created; it had to be stolen from someone who already had it.
A “financial” economy is like that. It assumes the cow can no longer produce milk nor sheep sellable wool. It slaughters both for the steaks and mutton for the lords’ tables. Too bad about the peasants; if God had not wanted them sheared, he would not have made them sheep.
A mixed economy of industry and services generates wealth; it feeds the geese, some of whose eggs are golden, and breeds more of them. In a “financial” economy, the MOTU eat the seed corn, take the golden eggs and roast the goose for dinner; the peasants starve.
Given those attributes of a “financial” economy, such an economy creates growing and sometimes violent social upheaval. It behooves the MOTU, then, to create, defend and “give purpose” to the national security state in order to have the tools necessary to defend against all their enemies, foreign and domestic. “National” interests become porous and morph into the zones of interest of the MOTU vs. everyone not a MOTU. Laws become pliable and are reshaped in much the same way.
The drop in MI employment is a small part of a national change.
U.S. GDP in March of 2008 was $14.546 Trillion and non farm employment was 137.841 million. Today, non-farm employment is 130.229 million and total GDP is $15.010 Trillion. So essentially we have $500 billion more output from almost 8 million fewer workers.
This is due to mechanization, improved information and transportation, and outsourcing. Not to worry, Obama’s new jobs guy is Jell Immelt, he from GE which paid no taxes last year:
Immelt: “When I am talking to GE managers, I talk China, China, China, China, China. [Five Chinas] You need to be there. You need to change the way people talk about it and how they get there. I am a nut on China. Outsourcing from China is going to grow to 5 billion. We are building a tech center in China. Every discussion today has to center on China. The cost basis is extremely attractive. You can take an 18 cubic foot refrigerator, make it in China, land it in the United States, and land it for less than we can make an 18 cubic foot refrigerator ourselves.”
So the Wisconsin thing is yesterday’s news. Supply and demand. We now have more people chasing fewer jobs, so good luck on collective bargaining when you do have, if you have it. The UAW collectively bargained a new contract at fourteen bucks an hour.
The US government has had a manufacturing policy under the US Commerce Department. It was implemented in Poland by US ambassador Ashe who was totally motivated to expedite investment and job creation in Poland under the US “MANUFACTURING INITIATIVE”!!!
This was done under an “offset program” whereby the Pentagon, Lockheed Division, sold F-16 airplanes to Poland. The Poles were promised that the value of their purchase would be “offset” by an equivalent US investment in Poland. Actually, under the ambitious Ashe, he doubled the amount.
Ambassador Ashe: “Our Commercial Service—the part of our embassy that devotes itself to trade promotion–has given priority to several sectors, under the Department of Commerce’s priority “Manufacturing Initiative.” I would like to mention just a few. . .
“Environmental Technologies: We are striving to bring American leaders in the environmental technologies sector to Poland. A number of industry leaders are present in Poland, including Atkins, Fluor, Parsons Brinkerhoff, C.D.M, Foster Wheeler, Caterpillar, U.S. Filter and others.”
“American companies such as Pratt & Whitney United Technologies, Lockheed Martin, and General Electric Aircraft Engines are investing in Poland’s aviation industry – a sector employing 16,000 skilled workers. There are discussions with Sikorsky and Boeing that we hope will add them to the list.”
“U.S. companies have confirmed Poland’s status as Central Europe’s automotive capital and have invested billions of dollars in this sector. These include GM with its $1 billion investment in Gliwice, Delphi, Goodyear, Eaton, Federal Mogul, Fiat-GM Powertrain, Lear, TRW, Visteon, Gates and Wabco.”
“While some in the media enjoy trying to poke holes in projects in the offset program, in reality, this has been a very successful stimulus to the overall growth in the U.S.-Polish commercial relationship. The American and Polish companies who have been involved have every reason to be proud of their efforts.”
–Ambassador Victor Ashe, September 13, 2005
EW,
A great piece of analysis, as usual!
For those of us with less mental agility, it would be helpful to put “(MIC)” immediately after the words “Military-Industrial-Complex” so that when we see you use the acronym later, we know what it means (It took me a few mental gyrations to figure it out.)
In a way, it’s almost too bad Arizona is doing relatively well. Gov. Brewer will surely take credit, and give credit to her draconian policies. It’s also too bad California is still doing poorly, as Republicans will no doubt blame the Democrats (rather than Schwarzenegger) for it.
Bob in AZ
Bob