Harry Moroz

The Seeds of Industrial Policy

Recent less bad unemployment and GDP numbers have brought on an unreasoned optimism about the economy. Analysts at JPMorgan Chase and RBS Securities now believe that the U.S. economy will experience a "V-shaped" recovery characterized by fast growth as consumers relieve pent-up demand. One need only remember that 2 million manufacturing jobs, 1.5 million professional and business services jobs, and half a million financial services jobs have been lost since the recession began and that 2 million homes are currently delinquent to see that ordinary Americans are going to continue hurting even as the economy returns to overall growth.

Noam Scheiber notes this and pushes back against the likelihood of a quick recovery, predicting instead a drawn-out period of correction. To deal with this, he recommends:

Something that's been a dirty word in Washington the last generation or two: industrial policy (that is, an active government role in the development of certain industries)...If...the government were to place some massive bets on R&D, we might substantially increase our chances of stumbling onto a major technological breakthrough-or at least accelerate the process.

Scheiber points to stimulus funds for research on electric vehicles as an example of the industrial policy he has mind.

In fact, the White House already has the beginnings of an industrial policy. The Office of Science and Technology Policy (OSTP), a White House office established by Congress in the 1970s and currently headed by John Holdren, advises the president about science and technology issues and attempts to coordinate science and technology policy.

Thus far, the OSTP has focused much of its energies on climate change. Holdren has testified twice before Congress about the environment, once about interagency efforts to improve the science supporting climate change research and once about the effects of climate change on agriculture and forestry.

But the OSTP is also the primary coordinator for research and development decisions across the federal government. Along with the Office of Management and Budget, the OSTP works with a wide range of different agencies to determine presidential priorities for R&D. In testimony to the House Committee on Science and Technology earlier this year, Holdren laid out the administration's "R&D budget," an informal document that lists any and all administration budget proposals that affect investments in areas like clean energy, broadband, health care information technology, and education. The 2010 budget includes $64 billion in nondefense R&D spending, with particularly large increases in education and health.

The OSTP is a natural office to direct Scheiber's industrial policy. Its innocuous mission and name provide it credibility to direct R&D investments in an innocuous way that avoids false accusations of government ownership of the means of production.

Still, the OSTP's ersatz budget cannot replace actual policy. An R&D budget - like the efforts of other White House interagency offices that attempt to transcend agency "silos" (the heads of these offices are often referred to as policy "czars") - is cobbled together from the priorities of powerful bureaucracies whose priorities are often different from, if not at odds with, those of their counterparts.

The OSTP can point out how in aggregate the administration has the beginnings of an industrial policy, but it cannot implement one on its own.

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Posted at 11:47 AM, Aug 14, 2009 in Economy
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