An important new book launched this week in Europe on issues related to innovation policy and industrial policy. “Questioning the Entrepreneurial State: Status-quo, Pitfalls, and the Need for Credible Innovation Policy” (Springer, 2022) brings together more than 30 scholars who contribute unique chapters to this impressive volume. It was edited by Karl Wennberg of the Stockholm School of Economics and Christian Sandström of the Jönköping (Sweden) International Business School.
As the title of this book suggests, the authors are generally pushing back against the thesis found in Mariana Mazzucato’s book
The Entrepreneurial State (2011). That book, like many other books and essays written recently, lays out a romantic view of industrial policy that sees government as the prime mover of markets and innovation. Mazzucato calls for “a bolder vision for the State’s dynamic role in fostering economic growth” and innovation. She wants the state fully entrenched in technological investments and decision-making throughout the economy because she believes that is the best way to expand the innovative potential of a nation.
The essays in
Questioning the Entrepreneurial State offer a different perspective, rooted in the realities on the ground in Europe today. Taken together, the chapters tell a fairly consistent story: Despite the existence of many different industrial policy schemes at the continental and country level, Europe isn’t in very good shape on the tech and innovation front. The heavy-handed policies and volumes of regulations imposed by the European Union and its member states have played a role in that outcome. But these governments have simultaneously been pushing to promote innovation using a variety of technocratic policy levers and industrial policy schemes. Despite all those well-intentioned efforts, the EU has struggled to keep up with the US and China in most important modern tech sectors. Continue reading →
I recently joined Rep. Dan Crenshaw on his Hold These Truths podcast to discuss, “What’s Wrong with Industrial Policy.” We chatted for 25 minutes about a wide range of issues related to the the growing push for grandiose industrial policy schemes in the US, including the massive new 3,000-page, $350 billion “COMPETES Act” legislation that recently passed in the House and which will soon be conferenced with a Senate bill that already passed.
On the same day this podcast was released this week, I also had a new op-ed appear in
The Hill on “The Coming Industrial Policy Hangover.” In both that essay and the podcast with Rep. Crenshaw, I stress that, beyond all the other problems with these new industrial policy measures, no one is talking about the fiscal cost of it all. As I note:
In the rush to pass legislation, we’ve barely heard a peep about the $250-$350 billion price tag. This follows a massive splurge of recent government borrowing, which led to the U.S. national debt hitting another lamentable new record: $30 trillion. China already owns over $1 trillion of that debt, making one wonder if we’re really countering China by adopting a massive, new and unfunded industrial policy that they will end up financing indirectly.
Discourse magazine recently published my essay on what “Industrial Policy Advocates Should Learn from Don Lavoie.” With industrial policy enjoying a major revival in the the U.S. — with several major federal proposals are pending or already set to go into effect — I argue that Lavoie’s work is worth revisiting, especially as this weekend was the 20th anniversary of his untimely passing. Jump over to Discourse to read the entire thing.
But one thing I wanted to just briefly highlight here is the useful tool Lavoie created that helped us think about the “planning spectrum,” or the range of different industrial policy planning motivations and proposals. On one axis, he plotted “futurist” versus “preservationist” advocates and proposals, with the futurists wanting to invest in new skills and technologies, while the preservationists seek to prop up existing sectors. On the other axis, he contrasted “left-wing or pro-labor” and “right-wing or pro-business” advocates and proposals.
Lavoie used this tool to help highlight the remarkable intellectual schizophrenia among industrial policy planners, who all claimed to have the One Big Plan to save the economy. The problem was, Lavoie noted, all their plans differed greatly. For example, he did a deep dive into the work of Robert Reich and Felix Rohatyn, who were both outspoken industrial policy advocates during the 80s. Reich as affiliated with the Harvard School of Government at that time, and Rohatyn was a well-known Wall Street financier. The industrial policy proposals set forth by Reich and Rohatyn received enormous media and academic attention at the time, yet no one except Lavoie seriously explored the many ways in which their proposals differed so fundamentally. Rohatyn was slotted on the lower right quadrant because of his desire to prop up old sectors and ensure the health of various private businesses. Reich fell into the upper quadrant of being more of futurist in his desire to have the government promote newer skills, sectors, and technologies. Continue reading →
In my latest column for The Hill, I consider that dangers of government gambling our tax dollars on risky industrial policy programs. I begin by noting:
Roll the dice at a casino enough times, and you are bound to win a few games. But knowing the odds are not in your favor, how much are you willing to risk losing by continuing to gamble?
This is the same issue governments confront when they gamble taxpayer dollars on industrial policy efforts, which can best be described as targeted and directed efforts to plan for specific future industrial outputs and outcomes. Throwing enough money at risky ventures might net a few wins, but at what cost? Could those resources have been better spent? And do bureaucrats really make better bets than private investors?
I continue on to note that, while the US is embarking on a major new industrial policy push, history does not provide us with a lot of hope regarding Uncle Sam’s betting record when he starts rolling those industrial policy dice. “How much tolerance should the public have for government industrial policy gambling?” I ask. I continue on:
Generally speaking, “basic” support (broad-based funding for universities and research labs) is wiser than “applied” (targeted subsidies for specific firms or sectors). With basic R&D funding, the chances of wasting resources on risky investments can be contained, at least as compared to highly targeted investments in unproven technologies and firms.
I also argue that “The riskiest bets on new technologies and sectors are better left to private investors,” and note how, “America’s venture capital industry remains the envy of the world because it continues to power world-beating advanced technology.” Accordingly, I conclude: Continue reading →
Industrial Policy is a red-hot topic once again with many policymakers and pundits of different ideological leanings lining up to support ambitious new state planning for various sectors — especially 5G, artificial intelligence, and semiconductors. A remarkably bipartisan array of people and organizations are advocating for government to flex its muscle and begin directing more spending and decision-making in various technological areas. They all suggest some sort of big plan is needed, and it is not uncommon for these industrial policy advocates to suggest that hundreds of billions will need to be spent in pursuit of those plans.
Others disagree, however, and I’ll be using this post to catalog some of their concerns on an ongoing basis. Some of the criticisms listed here are portions of longer essays, many of which highlight other types of steps that governments can take to spur innovative activities. Industrial policy is an amorphous term with many definitions of a broad spectrum of possible proposals. Almost everyone believes in
some form of industrial policy if you define the term broadly enough. But, as I argued in a September 2020 essay “On Defining ‘Industrial Policy‘,” I believe it is important to narrow the focus of the term such that we can continue to use the term in a rational way. Toward that end, I believe a proper understanding of industrial policy refers to targeted and directed efforts to plan for specific future industrial outputs and outcomes.
The collection of essays below is merely an attempt to highlight some of the general concerns about the most ambitious calls for expansive industrial policy, many of which harken back to debates I was covering in the late 1980s and early 1990s, when I first started a career in policy analysis. During that time, Japan and South Korea were the primary countries of concern cited by industrial policy advocates. Today, it is China’s growing economic standing that is fueling calls for ambitious state-led targeted investments in “strategic” sectors and technologies. To a lesser extent, grandiose European industrial policy proposals are also prompting new US counter-proposals.
All this activity is what has given rise to many of the critiques listed below. If you have suggestions for other essays I might add to this list, please feel free to pass them along. FYI: There’s no particular order here.
In July 2012, the D.C. Council approved the Social E-Commerce Job Creation Tax Incentive Act of 2012. The deal provided LivingSocial, a popular online coupon service, with corporate and property tax exemptions in Washington, D.C. worth approximately $32.5 million over five years beginning in 2015. Legislators feared that LivingSocial would relocate to areas with a lower tax rate. In exchange for the $32.5 million, LivingSocial said it would attempt to add 1,000 employees to its payroll (roughly doubling its number of employees in the District), although no contractual guarantee for job creation exists and even though the firm had never been profitable. Some of the few contractual obligations required for LivingSocial to receive these tax exemptions are that it must establish a program to mentor D.C. high school students, provide internships for D.C. students, and stay located in the District. LivingSocial must also ensure 50% of newly hired employees live in the District in order to receive the Act’s full $32.5 million in exemptions.
Just a few months after the deal was struck it had already become apparent just how risky of a bet the DC government has made with taxpayer dollars. In late November 2012, LivingSocial announced a net loss of $566 million for the third quarter and that hundreds of employees would be laid off. The promise to roughly doubling the size of its DC-based workforce seems fairly unlikely and some analysts doubt the company will survive much longer.
This serves as another case study for just how foolish it is for governments to make risky, taxpayer-backed bets on information tech companies. Continue reading →
Here’s a presentation I’ve been using lately for various audiences about “Cronyism: History, Costs, Case Studies and Solutions.” In the talk, I offer a definition of cronyism, explain its origins, discuss how various academics have traditionally thought about it, outline a variety of case studies, and then propose a range of solutions. Readers of this blog might be interested because I briefly mention the rise of cronyism in the high-tech sector. Brent Skorup and I have a huge paper in the works on that topic, which should be out early next year.
Nate Anderson of Ars Technica has posted an interview with Sen. Al Franken (D-MN) about Defining Internet “Freedom”. Neither Sen. Franken nor Mr. Anderson ever get around to defining that term in their exchange, but the clear implication from the piece is that “freedom” means freedom for the government to plan more and for policymakers to more closely monitor and control the Internet economy. The clearest indication of this comes when Sen. Franken repeats the old saw that net neutrality regulation is “the First Amendment issue of our time.”
As a lover of liberty, I find this corruption of language and continued debasement of the term “freedom” to be extremely troubling. The thinking we see at work here reflects the ongoing effort by many cyber-progressives (or “cyber-collectivists,” as I prefer to call them) to redefine Internet freedom as liberation from the supposed tyranny of the marketplace and the corresponding empowerment of techno-cratic philosopher kings to guide us toward a more enlightened and noble state of affairs. We are asked to ignore our history lessons, which teach us that centralized planning and bureaucracy all too often lead to massively inefficient outcomes, myriad unforeseen unintended consequences, bureaucratic waste, and regulatory capture. Instead, we are asked to believe that high-tech entrepreneurs are the true threat to human progress and liberty. They are cast as nefarious villains and their innovations, we are told, represent threats to our “freedom.” We even hear silly comparisons likening innovators like Apple to something out of George Orwell’s 1984. Continue reading →
The folks at the Pew Research Center’s Internet & American Life Project came out with another installment of their “Home Broadband” survey yesterday. This one, Home Broadband 2010, finds that “adoption of broadband Internet access slowed dramatically over the last year.” “Most demographic groups experienced flat-to-modest broadband adoption growth over the last year,” it reports, although there was 22% growth in broadband adoption by African-Americans. But the takeaway from the survey that is getting the most attention is the finding that:
By a 53%-41% margin, Americans say they do not believe that the spread of affordable broadband should be a major government priority. Contrary to what some might suspect, non-internet users are less likely than current users to say the government should place a high priority on the spread of high-speed connections.
This has a number of Washington tech policy pundits scratching their heads since it seems to cut against the conventional wisdom. Cecilia Kang of
The Washington Post penned a story about this today (“Support for Broadband Loses Speed as Nationwide Growth Slows“) and was kind enough to call me for comment about what might be going on here.
I suggested that there might be a number of reasons that respondents downplayed the importance of government actions to spur broadband diffusion, including that: (1) many folks are quite content with the Internet service they get today; (2) others might get their online fix at work or other places and not feel the need for it at home; and (3) some may not care two bits (excuse the pun) about broadband at all. More generally, I noted that, with all the other issues out there to consider, broadband policy just isn’t that important to most folks in the larger scheme of things. As I told Kang, “Let’s face it, when the average family of four is sitting around the dinner table, to the extent they talk about U.S. politics, broadband is not on the list of topics.” Continue reading →
Hey people. You owe me. All of you. You owe me free broadband. I am entitled to it, after all. That seems to be where our current FCC is heading, anyway. And hey, Finland’s just done it, and the supposed Silicon Valley capitalists at TechCrunch are giddy with delight about it. We’re apparently all just Scandinavian socialists at heart now.
Thus, I too have decided to throw in the towel on the idea of everyone carrying their own weight and picking up their own tab. So, get your wallets open and ready for me because I have lots and lots of things that I believe I have an inalienable right to receive free of charge from the government (i.e, “the people”; i.e., “YOU”). Please let me know which of the things on my high-tech wish list that you’ll be purchasing for me and I’ll check you off my registry so I don’t have to send the cops to your house to collect:
free broadband (fiber, Wi-Max, and whatever else is around the corner);
a couple of free new computers (and a really fast ones, thank you very much);
3 new HDTVs for my home (including one of those sweet new DLP projectors that usually cost about $10,000 bucks. And I’ll need you to pay for someone to help me install it. Or could you just come over and do that for me perhaps?);
3 free new DVRs for each new TV set that you are buying me (and could I get a nice universal remote to control everything, please);
a free subscription in my area to either DirecTV, Cox Cable, or Verizon FIOS TV (with all the premium channels and sports packages… and don’t forget the Playboy Channel!);
a free lifetime subscription to Netflix (or I guess I would settle for a free Blu-Ray player and some free movies);
free new wi-fi router and signal extenders for my home (N-standard please, none of that B or G garbage… too slow for me);
free mobile phone service for life + an iPhone + unlimited downloads in their app store (oh, could you have that iPhone autographed by Steve Jobs if you get a chance?);
free Playstation or XBox + lots of games (and if I could get one of those driving wheels to play my new Gran Turismo game that would be dandy); and finally,
free lifetime tech support when all this crap breaks down.
In closing, I thank you for your generosity. I mean, look, I know I don’t actually deserve any of this stuff, and that there’s no good reason that you should have to pay for my free-riding ways, and there’s obviously nothing in our Constitution to support all this, but hey… screw all that! This is my God-given birthright. I am
entitled, baby! Now get busy thinking of how you are all going to start paying for me, you selfish bastards.
The Technology Liberation Front is the tech policy blog dedicated to keeping politicians' hands off the 'net and everything else related to technology. Learn more about TLF →
In my latest column for The Hill, I consider that dangers of government gambling our tax dollars on risky industrial policy programs. I begin by noting:
The Technology Liberation Front is the tech policy blog dedicated to keeping politicians' hands off the 'net and everything else related to technology.