On Tuesday, Nancy Pelosi, Speaker of the U.S. House of Representatives, posted the text of the “America Creating Opportunities for Manufacturing, Pre-Eminence in Technology and Economic Strength Act of 2022,” or “The America COMPETES Act.” As far as industrial policy measures go, the COMPETES Act is one of the most ambitious and expensive central planning efforts in American history. It represents the triumph of top-down, corporatist, techno-mercantilist thinking over a more sensible innovation policy rooted in bottom-up competition, entrepreneurialism, private investment, and free trade.

Unprecedented Planning & Spending

First, the ugly facts: The full text of the COMPETES Act weighs in at a staggering 2,912 pages. A section-by-section “summary” of the measure takes up 109 pages alone. Even the shorter “fact sheet” for the bill is 20 pages long. It is impossible to believe that anyone in Congress has read every provision of this bill. It will be another case of having “to pass the bill so you can find out what’s in it,” as Speaker Pelosi once famously said about another mega-measure.

Of course, a mega bill presents major opportunities for lawmakers to sneak in endless gobs of pork and unrelated policy measures they can’t find any other way to get through Congress. The Senate already passed a similar 2,600-page companion measure last summer, “The U.S. Innovation and Competition Act.” Lawmakers loaded up that measure with so much pork and favors for special interests that Sen. John N. Kennedy (R-La.) labelled the effort an “orgy of spending porn.” Like that effort, the new COMPETES Act includes $52 billion to boost domestic semiconductor production as well as $45 billion in grants and loans to address supply chain issues.

But there are billions allocated for other initiatives, as well as countless provisions addressing other technologies and sectors. The list is seemingly endless and includes: 5G mobile networks, biometrics, quantum information science, “the development of safe and trustworthy artificial intelligence and data science,” cybersecurity literacy, drone security, microelectronics, electronic waste, genomics, isotope development, and the Large Hadron Collider and high intensity lasers, among many other things. The measure also proposes a broad array of Green New Deal-esque efforts focused on things like: biometrology, climate and Earth modeling, deforestation and overfishing / “driftnet” fishing matters, marine mammal research, solar energy, bioenergy, the creation of a National Engineering Biology Research and Development Initiative and a Regional Clean Energy Innovation Program at the Department of Energy, clean water programs, a national clean energy incubator program, and helium conservation, again among many other things. There are even provisions addressing the trading of shark fins and almost 70 pages of provisions on coral reef conservation.

A Sweeping Macroeconomic Planning Exercise

There are more sweeping macroeconomic provisions and mandates in the bill. For example, the COMPETES Act would create a new “national supply chain database,” as well as a Supply Chain Resiliency and Crisis Response Office in the Department of Commerce, while also requiring the Director of White House Office of Science & Technology Policy to develop and submit to Congress a 4-year comprehensive national S&T strategy. The measure also includes trade adjustment assistance for workers, firms, and farmers and even provisions dealing with currency undervaluation. There are also many provisions addressing drug manufacturing and medical supply chain issues. There are even proposed expansions of federal antitrust power. (Apparently, once America’s grandiose industrial policies magically create global powerhouses in every sector, we’ll need expanding antitrust action to tear them all down and start all over again! Meanwhile, perhaps the greatest irony of the new industrial policy efforts is that, while lawmakers are falling all over themselves to shower corporate America with hundreds of billions of taxpayer dollars, policymakers are simultaneously on a regulatory and antitrust jihad against many successful tech companies with bills that would break them up or destroy their business models.)

Perhaps most radically, the measure includes a 25-page section proposing a sweeping new “National Critical Capabilities Review” process to oversee outbound investments. Covington lawyers noted that, if such a regulatory regime is enacted, “the United States would become the first major Western advanced economy to adopt a broad-gauged outbound investment screening process, raising the prospect of a new era in national security-based reviews and restrictions of international investment flows.”

Finally, the COMPETES Act includes a huge assortment of other national security and foreign policy-related provisions, most of which focus on countering China in some fashion. “There’s a lot of Cold War-style influence mongering happening here,” says Reason’s Elizabeth Nolan Brown, including programs that sound like they could have been concocted by the CIA, such as the bill’s “Countering China’s Educational and Cultural Diplomacy in Latin America” initiative. But there is also a lot of language here addressing other regions or countries, including: Oceania, Africa, the Arctic, the Middle East, Iran, Hong Kong, Taiwan, and others.

The relationship of most of these provisions to U.S. industrial competitiveness is tenuous to say the least. Nonetheless, those provisions take up a huge amount of space in this nearly 3,000-page industrial policy measure and may end up complicating its passage.

A Chicken in Every Pot

The inclusion of “Regional Technology and Innovation Hubs” in the bill deserves special attention. The Act proposes $7 billion over four years to fund 10 different innovation hubs and it includes many provisions about how and where money will be spent. It’s hard to see how spreading $7 billion across 10 hubs is actually going to result in much once every special interest gets their cut of the action, but proposals like these are all the rage these days. It’s the equivalent of policymakers promising a high-tech chicken in every pot, or a Silicon Valley in every state.

In a two-part series for Discourse, I documented the problems associated with the many previous government efforts to create innovation hubs, tech clusters, or science parks. The government’s  track record in this regard is long and lamentable. Instead of following a time-tested approach getting the broad innovation policy environment right through a “generalized” approach to economic growth and development, most policymakers took unwise shortcuts and tried using “targeted” development schemes that were incredibly risky and ended up squandering a huge amount of taxpayer resources.

But all those failed past efforts probably won’t stop this high-tech pork barrel effort from rolling forward in some fashion. The proposed new regional hub effort comes on top of an announcement last July by the Commerce Department that the agency plans to allocate $1 billion in pandemic recovery funds to create or expand “regional industry clusters” as part of the administration’s new “Build Back Better Regional Challenge.” The agency’s list of possible winning funding ideas includes an “artificial intelligence corridor” and a “climate-friendly electric vehicle cluster.” And there are many other federal and state programs throwing money at the idea of hub or “cluster” formation, or even just highly cronyist efforts to attract a single big tech firm. (Anyone remember the Foxconn fiasco in Wisconsin?)

As Matt Mitchell and I have noted, this growing trend represents the collision of federal industrial policy and long-standing state-based economic development efforts. Regardless of how well-intentioned they may be, it is highly unlikely these new tech pork barrel efforts will produce better results than the long string of earlier federal and state failures.

Secondary Effects & Unforeseeable Costs

A bill this big presents many other big opportunities for corporations and other special interests. It’s no wonder that many companies, trade associations, and other special interests are lining up to support this effort. In a recent study co-authored with Connor Haaland (“Does the US Need a More Targeted Industrial Policy for AI & High-Tech”), we outlined “the way rent-seeking and cronyism often become chronic problems for highly targeted, big-budget industrial policy efforts.” Those problems will grow exponentially if the COMPETES Act passes. Everyone expects a cut of the action when Washington starts showering sectors with money.

But there’s a bigger problem associated with the everything-and-the-kitchen-sink approach to such a massive industrial policy bill.  All the ambiguities associated with a monster measure like this means that agency bureaucrats will be left to fill in all the details for many years to come. It is folly of the highest order to believe that all these agencies will work together in a tightly coordinated and consistent way to advance industrial policy efforts or address “strategic objectives.” Anyone currently following the fight between the FAA and FCC over the rollout of 5G wireless networks will know what I am talking about. Moreover, delegating broad authority and big money to all these agencies just further reinforces the rent-seeking instincts of special interests, who will rush to their respective regulatory masters with hat in hand. This presents agencies with an added policy lever to blackmail companies into doing what they want without any new regulations even being issued.

And then there is the final consideration: where will all the money come from for this grand exercise in technocratic central planning? The Senate bill costs an estimated $250 billion. To be clear, that’s A QUARTER TRILLION DOLLARS. We’re talking big money, and chances are that the final price tag for the House’s COMPETES Act will be even higher. Does the money to fund all this profligate spending just fall like manna from industrial policy heaven? No, it will come out the pockets of the American taxpayer and American companies (who will just pass the bill along to consumers). This will have dynamic effects on growth and innovation that are almost never discussed in industrial policy debates. Here’s how Connor Haaland and I put it in our big study:

“First, a dollar spent pursuing one objective is a dollar that could have been invested differently, and potential better. Second, the very act of imposing taxes to cover these state gambits results in costs and distortions that must be accounted for. Some of these costs are deadweight losses associated with taxes and tax collection more generally. But this points to a third lesson: The true potential costs associated with industrial policy programs also need to account for the negative secondary effects of rent-seeking, bureaucracy, and the many other downsides of the political system, included cost overruns and corruption.”

As the old saying goes: There is no free lunch.

Conclusion: There Is a Better Way

Some advocates of the COMPETES Act label it a “competitiveness bill” or an “innovation initiative.” It takes a great deal of hubris to pretend that that the economy is just a giant machine to be manipulated and that policymakers can easily “dial in” the desired innovation results through massive bills and expanded bureaucracy.

Lawmakers and bureaucrats are not going to allocate capital more efficiently than private innovators and investors. Nor are they going to be able to “shore up supply chains” or create tech hubs in every city just by sprinkling a little magical industrial policy pixie dust thinly across the entire nation.

We should not try to compete with China by becoming China. Nor do we need to. Markets and supply chains recover from setbacks faster than governments can. This week, the White House reiterated its support for industrial policy efforts to strengthen supply chains and extend subsidies to the semiconductors industry. But, assuming the COMPETES Act passes, it’ll take years to get all the planning and spending going. When government spins those proverbial dials, it does so very slowly and extremely inefficiently. Meanwhile, the same day the White House was making these announcements, it was also touting that $80 billion in private investment has been announced by the US semiconductor industry recently. Just last week, Intel announced it plans to invest at least $20 billion in two new chip-making facilities in Ohio. Scott Lincicome and Ilana Blumsack have documented the many other private initiatives underway by the semiconductor industry to expand domestic manufacturing capacity, as well as efforts by foreign firms like Samsung to invest here to take advantage of our skilled workforce and vibrant capital market. This is all happening despite the fact that Congress is still debating an industrial policy measure that may end up being too bloated to even achieve successful passage this session.

Does government have any role to play? It certainly does. Most current industrial policy proposals fail to understand that the most important thing that policymakers can do is to clean up decades of earlier failed industrial policy efforts. Industrial policies in fields like energy, aviation, space, communications and other sectors skewed markets in unnatural and inefficient ways by favoring specific technologies and companies over others. This is because industrial policy all too often devolves into the business of picking winners and losers. This is not always done in a formal way or even with clear intent. Rather, when government is throwing around billions and engaging in casino economics by placing big bets, a lucky few will win at the expense of others.

Of course, not all government support is as wasteful or corporatist in character. “Basic” R&D efforts are certainly more defensible than most “applied” or “targeted” efforts. “When government is supporting basic R&D,” Connor Haaland and I have noted, “the chances of wasting scarce resources on risky investments can be minimized to some degree, at least as compared with highly targeted applied R&D investments in unproven technologies and firms.”

And then there are all of the education and training efforts governments can undertake. If lawmakers were smart, they would have just limited their efforts to the sort of things found in Titles III, V, and VI of the COMPETES Act, which relates to boosting STEM education, high-tech workforce training, improving National Science Foundation research efforts, and funding various other federal science agencies and labs, that conduct more basic research. And more flexible immigration policies are also essential.

Meanwhile, government defense spending isn’t going to dry up anytime soon and it continues to represent an indirect form of industrial policy given the trillions of dollars that are spread around through the so-called “military-industrial complex.” That certainly doesn’t mean America should be greatly expanding its already bloated defense budgets in the name of expanding industrial policy. Yet, for better or worse, government is always going to be spending a lot of money on defense priorities and it gives it a chance to address whatever “strategic” needs it has.

But the current industrial policy behemoth advancing in Congress represents a misguided effort at domestic retrenchment and a collapse into a lamentable sort of techno-mercantilism thinking that happens every quarter century or so. In my paper with Haaland as well as a separate essay, I have documented just how misguided the “Japan panic” of the 1980s and 90s was. One policymaker and pundit after another lined up to breathlessly proclaim the end of America if we failed to adopt a grandiose industrial policy to counter Japan. Of course, that industrial policy approach ended up being such a disaster that even the Japanese government itself declared in a 2000 report that “the Japanese model was not the source of Japanese competitiveness but the cause of our failure.”

Moreover, it is worth noting what happened with the Internet and digital technology in the U.S. versus the rest of the world in the 1990s and beyond. America essentially put a policy firewall between the emerging digital technology sector and the old industrial policy regime we had for analog sectors and technologies, like broadcasting and wireline telephony. And thank God we did! America’s digital technology sector thrived, and U.S.-headquartered tech companies became household names across the globe. Meanwhile, the Europeans have spent 20 years crafting one misguided industrial policy scheme after another to equal America’s accomplishments. Despite highly targeted and expensive efforts to foster a domestic digital tech base, the EU has instead generated a string of industrial policy failures that Haaland and I documented in detail here.

Corporatism, cronyism, and profligate pork-barrel spending were not the sources of America’s competitive advantage in digital technology, and top-down planning did not make our digital technology companies global powerhouses.  Instead, we got our innovation culture right for digital technology. First and foremost, our the default regulatory policy for the digital economy was permissionless innovation. No one had to ask anyone for the right to develop all those new digital technologies and online platforms. The Clinton Administration’s 1997 “Framework for Global Electronic Commerce” announced that “governments should encourage industry self-regulation and private sector leadership where possible” and “avoid undue restrictions on electronic commerce.” Second, investors saw that positive policy ecosystem developing and moved quickly to shower entrepreneurs in this sector with unprecedented private venture capital investment. Third, education and career opportunities in these sectors expanded accordingly. Real-time “learning by doing” took place as millions of people learned new digital skillsets on the fly. Kids learned how to code before anyone could even teach them how to type. Most importantly, talented immigrants and foreign investors then came here to take advantage of all this, allowing America to steal away the best and brightest from the rest of the world.

This constitutes one of the greatest capitalist success stories in human history, and it all happened without targeted, technocratic, top-down industrial policy planning. This is the more principled and less costly vision for innovation policy America needs today to counter China and the rest of the world. There is absolutely no reason that we can’t apply this same vision to aviation, space, semiconductors, energy, nanotech, AI, and many other sectors of importance.

Additional Reading from Adam Thierer on Industrial Policy:

• Adam Thierer & Connor Haaland, “Does the US Need a More Targeted Industrial Policy for AI & High-Tech?” Mercatus Center Research Paper, November 17, 2021.
• Adam Thierer, “The Coming Industrial Policy Hangover,” The Hill, February 16, 2022.
• Podcast: “What’s Wrong with Industrial Policy,” Hold These Truths with Rep. Dan Crenshaw, February 16, 2022.
• Adam Thierer, “Government Planning and Spending Won’t Replicate Silicon Valley,” Discourse, August 18, 2021.
• Adam Thierer, “To Promote Tech Hubs Across the Country, Governments Should Focus on Improving the General Business Environment,” Discourse, September 9, 2021.
• Adam Thierer, “Industrial Policy as ‘Casino Economics‘,” The Hill, July 12, 2021.
• Adam Thierer, “‘Japan Inc.’ and Other Tales of Industrial Policy Apocalypse,” Discourse, June 28, 2021.
• Adam Thierer & Connor Haaland, “Should the U.S. Copy China’s Industrial Policy?” Discourse, March 11, 2021.
• Connor Haaland & Adam Thierer, “Can European-Style Industrial Policies Create Tech Supremacy?” Discourse, February 11, 2021.
• Matthew D. Mitchell and Adam Thierer, “Industrial Policy is a Very Old, New Idea,” Discourse, April 6, 2021.
• Adam Thierer, “Industrial Policy Advocates Should Learn from Don Lavoie,” Discourse, November 5, 2021.
• Adam Thierer, “On Defining ‘Industrial Policy,'” Technology Liberation Front, September 3, 2020.
• Adam Thierer, “Skeptical Takes on Expansive Industrial Policy Efforts,” Technology Liberation Front, March 15, 2021.

Other critical essays on industrial policy:

• Mike Watson, “Industrial Policy in the Real World,” National Affairs, Summer 2021.
• Scott Lincicome and Huan Zhu, “Questioning Industrial Policy: Why Government Manufacturing Plans Are Ineffective and Unnecessary,” Cato Institute Working Paper, June 16, 2021.
• Samuel Gregg, “Industrial Policy Mythology Confronts Economic Reality,” Law & Liberty, September 3, 2021.
• Chang-Tai Hsieh, “Countering Chinese Industrial Policy Is Counterproductive,” Project Syndicate, September 15, 2021.
• Anne O. Krueger, “America’s Muddled Industrial Policy,” CGTN, June 25, 2021.
• Tracy C. Miller, “The Case for Limiting Government Semiconductor Subsidies,” The Hill, June 26, 2021.
• Scott Lincicome, “The ‘Endless Frontier’ and American Industrial Policy,” Cato Institute Blog, May 26, 2021.
• Daniel W. Drezner, “Is the United States capable of industrial policy in 2021?” Washington Post, June 14, 2021.
• Douglas Holtz-Eakin, “The Nicest Thing I Can Write About Supply Chain Policy,” The Daily Dish, June 10, 2021.
• Lipton Matthews, “Industrial Policy—a.k.a. Central Planning—Won’t Make America Great,” Mises Wire, November 5, 2021.
• Richard Beason, “Japanese Industrial Policy: An Economic Assessment,” National Foundation for American Policy, November 2021.
• Douglas Irwin, “Memo to the Biden administration on how to rethink industrial policy,” Peterson Institute for International Economics, October 2020.
• Jim Pethokoukis, “Will Biden’s embrace of industrial policy pay off?” AEI Blog, January 15, 2021.
• Phil Levy & Christine McDaniel, “Does the U.S. Need a Vigorous Industrial Policy?” Discourse, February 16, 2021.
• Veronique de Rugy, “Support for Industrial Policy is Growing,” AIER, January 18, 2020.
• Ben Reinhardt on concerns about The Endless Frontier Act
• Ryan Bourne, “Do Oren Cass’s Justifications for Industrial Policy Stack Up?” Cato Commentary, August 15, 2019.
• Scott Lincicome, “Manufactured Crisis: ‘Deindustrialization, Free Markets, and National Security,” Cato Policy Analysis No. 907, January 27, 2021.
• Judge Glock, “Semiconductors Don’t Need Subsidies,” City Journal, April 20, 2021.
• Judge Glock, “Industrial Policy Hurts Industry,” Washington Examiner, April 20, 2021.

Discourse magazine has just published my review of Where Is My Flying Car?, by J. Storrs Hall, which I argue is the most important book on technology policy written in the past quarter century. Hall perfectly defines what is at stake if we fail to embrace a pro-progress policy vision going forward. Hall documents how a “Jetsons” future was within our grasp, but it was stolen away from us. What held back progress in key sectors like transportation, nanotech & energy was anti-technological thinking and the overregulation that accompanies it. “[T]he Great Stagnation was really the Great Strangulation,” he argues. The culprits: negative cultural attitudes toward innovation, incumbent companies or academics looking to protect their turf, litigation-happy trial lawyers, and a raft of risk-averse laws and regulations.

Hall coins the term “the Machiavelli Effect” to identify why many people simultaneously fear the new and different, and they also want to protect whatever status quo they benefit from (or at least feel comfortable with). He builds on this passage from Niccolò Machiavelli’s classic 1532 study of political power, “The Prince”:

[I]t ought to be remembered that there is nothing more difficult to take in hand, more perilous to conduct, or more uncertain in its success, then to take the lead in the introduction of a new order of things. Because the innovator has for enemies all those who have done well under the old conditions, and lukewarm defenders in those who may do well under the new. This coolness arises partly from fear of the opponents, who have the laws on their side, and partly from the incredulity of men, who do not readily believe in new things until they have had a long experience of them. Thus it happens that whenever those who are hostile have the opportunity to attack they do it like partisans, whilst the others defend lukewarmly, in such wise that the prince is endangered along with them.

Hall notes that the Machiavelli Effect “has nothing to do with any conspiracy.” Rather, it comes down to human nature: Many people simultaneously fear the new and different, and they also want to protect whatever status quo they benefit from (or at least feel comfortable with). Isaac Asimov identified the same problem in a 1974 lecture when he noted how there had been “bitter, exaggerated, last-stitch resistance . . . to every significant technological change that had taken place on earth.” [On this same point, also see Innovation and Its Enemies: Why People Resist New Technologies, by Calestous Juma. It’s the best history on the topic.]

Hall identifies how the Machiavelli Effect held back nuclear, nanotech, and aviation technologies. “Over the long run, unchecked regulation destroys the learning curve, prevents innovation, protects and preserves inefficiency, and makes progress run backward.” The problem is the Precautionary Principle, which undermines the learning curve is by setting policy defaults to no trial and error as opposed to free to experiment. There can be no reward without some risk! Hall quotes Wilbur Wright on this, who once noted that, “If you are looking for perfect safety, you would do well to sit on a fence and watch the birds.”

Over-regulation of those sectors also resulted in massive misallocation of talent, “taking more than a million of the country’s most talented and motivated people and putting them to work making arguments and filing briefs instead of inventing, developing, and manufacturing.” Hall is equally critical of government R&D efforts. “One of the great tragedies of the latter 20th century, and clearly one of the causes of the Great Stagnation,” he argues, “was the increasing centralization and bureaucratization of science and research funding.”

Hall’s book builds on Jason Crawford’s insight that, “We need a new philosophy of progress,” that is rooted in optimism about the future and support for a culture of trial-and-error experimentation. Hall’s book is a major contribution to that effort. Hall makes a profoundly moral case for innovation. “The zero-sum society is a recipe for evil,” because it leaves us with a “static level of existence” that denies us the ability to improve the human condition. Indeed, Hall’s book is the most full-throated defense of innovation by a trained scientist or engineer since Samuel Florman’s 1976 “Existential Pleasures of Engineering.” Both are celebrations of the potential for humanity to build more and better tools to improve the world.

Hall’s book should also be read alongside books from Virginia Postrel (“The Future and Its Enemies”), Steven Pinker (“Enlightenment Now”), Matt Ridley (“How Innovation Works”) and Deirdre McCloskey’s three-volume trilogy about the history of modern economic growth. These scholars argue that there is a symbiotic relationship between innovation, economic growth, pluralism and human betterment, and that to deny people the ability to improve their lot in life is fundamentally anti-human.

I just cannot recommend Hall’s Where Is My Flying Car? highly enough. It’s a masterpiece. And bravo to Stripe Press for publishing a beautiful hardbound edition. It is a stunning book both to behold and read. Order it now, and jump over to Discourse to read my entire review of it.

Earth Day is fast approaching, yet despite the awareness this day brings, most people are powering their computers with electricity from coal-burning power plants, delivered by “dumb” networks. Change is long overdue, and it’s not a difficult matter.

The electricity grid’s basic structure hasn’t changed much since Thomas Edison came up with the idea back in 1882. That’s a long time with little innovation, especially since electricity demands continue to rise. Some might argue that the grid didn’t need changes and it’s not wise to mess with a system already working. That argument no longer holds, anyone who lives in California’s Silicon Valley knows. Blackouts and shortages are a constant worry every summer and the grid is unable to properly handle newer and cleaner sources of energy such as solar and wind.

Worse, when a blackout does happen, the utility company usually doesn’t know until someone phones in the problem. That’s because the system can’t sense the problem — it is “dumb” and only sends inputs one way. So how come the grid isn’t smarter, and what can we do about it? The answer is not as complicated as one might imagine.

[…]

Read more here.

At a press conference this morning at the National Press club in Washington, the Space Solar Alliance for Future Energy (SSAFE) announced a milestone demonstration of the critical technology enabling SBSP:  long-distance, solar-powered wireless power transmission.  The demonstration project, led by NASA veteran John C. Mankins, demonstrated microwave power transmission between two Hawaiian islands 148 kilometers apart, more than the distance from the surface of Earth to the boundary of space.  Although SBSP satellites would ultimately operate at much higher altitudes in the geosynchronous orbit (35,786 km AMSL), Mankins has successfully demonstrated the feasibility of long-distance energy transmission in principle.

Those of you who haven’t “cut the cord” to television (as I did about 5-6 years ago) may be interested to watch a special episode of Discovery Project Earth entitled “Orbital Powerplant) that will debut tonight at 10 pm with reruns on September 13 at 2am and noon.

This video provides more background on SBSP (until recently known as “Space Solar Power”):

http://www.youtube.com/v/YiU9MibyBJ0 My good friend Col. “Coyote” Smith has begun exploring some of the basic regulatory issues surrounding SBSP satellites, and the National Space Society has collected a wealth of materials on SBSP here. Those feeling particularly adventurous may way to check out the other space-related episode in the Discovery Project Earth series “Space Sunshield” (shown 1 hr before each of the timeslots mentioned above) about the idea developed by NASA Ames Research Center Director Pete Worden to address global climate change: