Commentary

U.S. Doesn’t Need Industrial Policy

For a nation whose consumers spend twice as much on services than on goods, and where 90% of the workforce is employed outside the manufacturing sector, the obsession with manufacturing is misplaced.

This romanticized notion about manufacturing’s value to the U.S. economy often fosters policies with pernicious long-term economic effects: tax breaks, subsidies, trade barriers and other coddling market distortions.

Even Christina Romer, an architect of President Obama’s “stimulus” plan and one who is obviously not averse to government tinkering with the economy, concludes: “American consumers value health care and haircuts as much as washing machines and hair dryers. And our earnings from exporting architectural plans for a building in Shanghai are as real as those from exporting cars to Canada… A persuasive case for a manufacturing policy remains to be made.”

Manufacturing apologists erroneously point to China’s near-double-digit growth during the sluggish U.S. economic recovery as further evidence that top-down economic policies can ensure economic health.

But China’s evolution from subsistence to midlevel manufacturing is not instructive for an economy at the technological fore. Industrial policy is anathema to value-driven innovation, and thus doesn’t play to America’s strengths.

China engages in industrial policy because it doesn’t have the advantages of the U.S., such as a culture that values dissent and experimentation and that has cultivated institutions supporting innovation, branding and entrepreneurship.

With America’s pre-eminence in innovation and entrepreneurship still intact, the U.S. is situated at the top of the global value chain. Staying there will require policies that bolster the rule of law, inject greater certainty into the business climate, and encourage the best and the brightest to come and stay in the country. We must treat entrepreneurs as rock stars, not with contempt.

If we really want our companies — manufacturing and otherwise — to be competitive, policymakers should start by reducing the cost of superfluous regulations, frivolous lawsuits and runaway health care costs.

Daniel Ikenson is director of the Herbert A. Stiefel Center for Trade Policy Studies at the Cato Institute.