Thursday, January 07, 2010

Government and Industrial Policy

Atrios comments on our attitudes here in the US with regards to anything called "industrial policy". As he says
One of my longstanding pet peeves is that everyone in the US pretends we don't have an "industrial policy" because that implies naughty state intervention in certain sectors. But of course we have lots of naughty state intervention in certain sectors, we just don't do it even notionally for any good reason. We prop up the single family homebuilding industry and the automobile industry (even before the bailouts). We prop up certain agricultural sectors. We favor big business over small. Now we're massively propping up one skimmer industry - the financial industry - and are about to prop up another skimmer industry - health insurance.

So, yes, by design or accident we have industry policy. We should recognize that and then decide what we should be doing instead of pretending we don't have any.
James K. Galbraith comments on our attitudes toward industrial policy as well in The Preditor State.  In chapter 12 he advances the need for planning.  Our aversion to anything called industrial policy is harmful to us and foolish.

I agree with this, but I believe that there is a more fundamental problem.  It seems to me that everyone discussing economics and political theory treat government as some sort of external entity which 'interferes" with markets and the economy.  I believe that our universal insistence on this complete separation between government and the economy to be absurd. 

The government produces a host of useful services.  Basic security of the sort universally accepted by conservatives and liberals alike is certainly valuable.  Ones labor and property are more valuable because one can reliably accumulate property and the produce of ones labor and trade them for other things of value.  But in addition to that basic service the government also provides a number of other services that I've discussed elsewhere.  A partial list:
  • Incorporation
  • Copyright protection
  • License the air waves
  • Trade deals with other nations
  • Securing sea lanes for trade
  • Securing patents and trademarks
These services are certainly produced and provided by the government and and also certainly extremely valuable.  The government is not some outside agency, but a vital part of the economy.  We need to have some thought out industrial and economic policy because the government is a part of the economy. Our most recent policy of providing these services, but giving them away with no obligation on the part of the recipeint is certainly one choice we could make.  A very foolish choice, but a choice nonetheless.  However, if this, or anything else, should be our policy, it should be so because we, as a country, have made a decision to have this policy, not out of a knee-jerk opposition to the phrase "industrial policy". 

A further note.  Currently, and for many years, government has provided the services listed above.  In spite of many years of claiming to be in favor of smaller and limited government, conservatives have never proposed reducing or eliminating these services.  We are in no way shrinking government by providing these services and then giving them away.  This policy only serves to 1) make government larger and 2) remove what protections we have from the dangers of an over large government.  It is an utterly foolish policy. 

The policy I would recommend is to provide these services and charge a reasonable amount for them.  Mind you, I do not want to take all the money from those who use these services.  Indeed, I want to make sure that those who use the services make a buch of money doing so.  I just want the people to collect a fair portion of the money generated by these services and spend it on things of value to us. 

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