Industrial Policy: Part III

"Starman on the way to Mars in a Tesla" by PeterThoeny is licensed under CC BY-NC-SA 2.0.

BY Hank Thayer

[This is the last part of a three-part series.]

As I stated in Part II of this series, there is no need to protect every industry. Rather, we should distinguish between those we need to protect and promote and those we do not, and how best to protect and promote them. 

There are several categories we should consider: There are industries where we lead and where we want to maintain our lead. There are industries in which we are major players and want to maintain our position. There are industries in which we may need to establish a major presence even if we do not have one now. There are industries for which we need to maintain at least a minimal presence. There are industries that are of virtually no consequence. And finally, there are industries that have no future in the United States, but which may have work forces who need help transitioning to other work. A different approach is needed for each of these categories.

To cover all the details would take a book-length post, but I will try and cover the key points here.

First, we need to maintain our leading position in aerospace. (Full disclosure: I work in aerospace.) The jobs are excellent, the industry is absolutely critical for defense, and since we already have a leading position there is no reason to give it up. 

However, our current leading position is not guaranteed. In the 1970s the top three manufacturers of commercial aircraft were based in the United States: Boeing, McDonnell-Douglas, and Lockheed. There were European aircraft, notably the Vickers VC10 and the French Sud Aviation Caravelle. But they were not serious competitors to the American manufacturers. 

Now McDonnell-Douglas is gone (merged with Boeing, to Boeing’s detriment in my opinion) and Lockheed has dropped out of commercial aviation. Meanwhile Airbus has taken the global lead in commercial aviation. How did this happen? 

Basically, the Europeans simply decided they wanted to be major players in aerospace and committed the necessary resources to achieve their goal. They formed a consortium of their existing aerospace firms and set up the conditions for them to succeed. In short, they created an industrial policy. 

It does no good to gnash one’s teeth over how unfair it is. They did it. They succeeded. Airbus is thriving, and Boeing is in serious trouble. 

The precise steps Europe took to secure the success of Airbus, and the steps we will need to take to keep Boeing competitive, can be the subject of other essays and discussions. For now, we need to recognize that it is possible (the Europeans did it, and they are no smarter than we are) and it is necessary. 

Other areas where we need to maintain a leading position are lasers, high-end robots like those made by Boston Dynamics, processor chips, pharmaceuticals, satellites, commercial launch services, electric vehicles, and self-driving cars.

We are still major players in light trucks, long haul trucks (semis), specialty metals, computers, supercomputers, and wind turbines. We should take steps to maintain our position in these industries. Some are critical to the function of our economy, so we should not become dependent on other countries in these fields. Others are growth industries we will need as a source of jobs as other industries are lost.

We are not currently significant players in several critical industries where we once enjoyed prominence, or even dominance, and in those we should work to recover at least a competitive position. These industries include straight trucks, industrial robots, and machine tools. 

For a number of reasons, we have been forced out of each of these fields. But in each of them, we do not want to be dependent of foreign suppliers, particularly in machine tools. Machine tools are critical to most other manufacturing, including defense. 

The good news is that there are plenty of models for how to recover these industries. Further, as major purchasers, we have some leverage over suppliers to get them to set up manufacturing sites in the United States. For example, Detroit, even in its diminished position, is a major customer of both ABB and Fanuc robots; it should be possible to get them to manufacture at least some of the robots they sell to American automakers in, say, Detroit. 

The same principle can be applied to high-speed rail equipment. If we intend to build a high-speed rail network, we will need rolling stock. We do not make any of that equipment in the United States at present. In the current circumstances, we have to put it out to bid to foreign companies like Siemens, Hitachi, Kawasaki and Hyundai. Part of the bidding process should include a requirement for final assembly in the United States, as well as incentives for domestic content. A high-speed rail network, besides giving us a more efficient transportation network, could, and should, be a source of good American jobs.

In several other industries, we have a minimal presence and do not need to lead them, or even hold a major position. But we should not allow ourselves to be pushed out altogether. These industries include commodity steel and aluminum, ship building (if only to supply our Navy and Coast Guard), tires, memory chips, hand tools, smart phones, railroad rolling stock, and textiles (if only for military uniforms). Becoming completely dependent on foreign competitors in any of these fields would leave us vulnerable.  And, of course, the loss of jobs would hurt as well.

Finally, there are industries which are either of no consequence or have no long-term future domestically. We will need to ease our way out of these industries, ideally by siting growth industries in the locations which are losing jobs as the old industries disappear. These industries, some of which are already gone, include most textiles, sporting goods, bicycles, home appliances, consumer electronics and, as much as some people might not want to think about it, most coal mining. 

But, again, for those areas suffering major job loss, growth industries will be critical. And to capitalize on them, we need intelligent policy and not bad ideas like the fatuous notion that coal miners should move to California and learn to code. A coal miner might not be happy doing such a thing even if they could. But they possibly could be successful, and happy, running a drop forge making railroad wheels, especially if they can do it where they currently live. 

Of course, we can never know for certain which industries will have the best opportunities for growth. But it is a fair bet that solar panels, wind turbines, and high-speed rail will be among them. And there are surely some other big changes coming to our economy due to the need to address global warming, among other factors. 

A well-crafted industrial policy would help us negotiate the changes and wind up better off than we are now.

Hank Thayer received his Bachelor of Arts in Political Science from the University of Massachusetts, and holds both a B.S. and a Masters in Engineering from Worcester Polytechnic Institute. After serving as a U.S. Army Infantry Officer in the late 1980s, he has spent most of his professional life working in manufacturing. In addition to being an amateur historian he is a fair-to-middling shade tree mechanic.

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The Modern Whig Institute is a 501(c)(3) civic research and education foundation dedicated to the fundamental American principles of representative government, ordered liberty, capitalism, due process and the rule of law.

Opinions expressed here are those of the author and do not necessarily reflect the views of the Institute or its members.