The Mercatus Center has just released a new special study that I co-authored with Connor Haaland entitled, “Does the United States Need a More Targeted Industrial Policy for High Tech?” With industrial policy reemerging as a major issue — and with Congress still debating a $250 billion, 2,400-page industrial policy bill — our report does a deep dive into the history various industrial policy efforts both here and abroad over the past half century. Our 64-page survey of the historical record leads us to conclude that, “targeted industrial policy programs cannot magically bring about innovation or economic growth, and government efforts to plan economies from the top down have never had an encouraging track record.”

We zero in on the distinction between general versus targeted economic development efforts and argue that:

whether we are referring to federal, state, or local planning efforts—the more highly tar­geted development efforts typically involve many tradeoffs that are often not taken into consider­ation by industrial policy advocates. Downsides include government steering of public resources into unproductive endeavors, as well as more serious problems, such as cronyism and even corruption.

We also stress the need to more tightly define the term “industrial policy” to ensure rational evaluation is even possible. We argue that, “industrial policy has intentionality and directionality, which distinguishes it from science policy, innovation policy, and economic policy more generally.” We like the focus definition used by economist Nathaniel Lane, who defines industrial policy as “intentional political action meant to shift the industrial structure of an economy.”

Our report examines the so-called “Japan model” of industrial policy that was all the rage in intellectual circles a generation ago and then compares it to the Chinese and European industrial policy efforts of today, which many pundits claim that the US needs to mimic. Continue reading →

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 →

A short presentation I do for Mercatus Center graduate students every couple of years offering advice to aspiring policy scholars looking to develop their personal brand & be more effective public policy analysts.

What explains the rebirth of analog era media? Many people (including me!) predicted that vinyl records, turntables, broadcast TV antennas and even printed books seemed destined for the dustbin of technological history. We were so wrong, as I note in this new oped that has gone out through the Tribune Wire Service.

“Many of us threw away our record collections and antennas and began migrating from physical books to digital ones,” I note. “Now, these older technologies are enjoying a revival. What explains their resurgence, and what’s the lesson?”

I offer some data about the rebirth of analog era media as well as some possible explanations for their resurgence. “With vinyl records and printed books, people enjoy making a physical connection with the art they love. They want to hold it in their hands, display it on their wall and show it off to their friends. Digital music or books don’t satisfy that desire, no matter how much more convenient and affordable they might be. The mediums still matter.”

Read more here. Meanwhile, my own personal vinyl collection continues to grow without constraint! …

Wishful thinking is a dangerous drug. Some pundits and policymakers believe that, if your intentions are pure and you have the “right” people in power, all government needs to do is sprinkle a little pixie dust (in the form of billions of taxpayer dollars) and magical things will happen.

Of course, reality has a funny way of throwing a wrench into the best-laid plans. Which brings me to the question I raise in a new 2-part series for Discourse magazine: Can governments replicate Silicon Valley everywhere?

In the first installment, I explore the track record of federal and state attempts to build tech clusters, science parks & “regional innovation hubs” using state subsidies and industrial policy. This is highly relevant today because of the huge new industrial policy push at the federal level is building on top of growing state and local efforts to create tech hubs, science parks, or various other types of industrial “clusters.

At the federal level, this summer, the Senate passed a 2,300-page industrial policy bill, the “United States Innovation and Competition Act of 2021,” that included almost $10 billion over four years for a Department of Commerce-led effort to fund 20 new regional technology hubs, “in a manner that ensures geographic diversity and representation from communities of differing populations.” A similar proposal that is moving in the House, the “Regional Innovation Act of 2021,” proposes almost $7 billion over five years for 10 regional tech hubs. Meanwhile, the Biden administration also is pitching ideas for new high-tech hubs. In late July, the Commerce Department’s Economic Development Administration announced 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. Among the possible ideas the agency said might win funding are an “artificial intelligence corridor,” an “agriculture-technology cluster” in rural coal counties, a “blue economy cluster” in coastal regions, and a “climate-friendly electric vehicle cluster.”

In my essay, I note that the economic literature on these efforts has been fairly negative, to put it mildly. Continue reading →

Financial Help for Gamblers: How to Get Find ReliefIn 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 →

The Federal Trade Commission (FTC) voted on July 1 to withdraw its pubic affirmation of consumer welfare as the guiding principle for antitrust enforcement. While this change is symbolic at this point, it weakens the agency’s public commitment to an objective consumer-based approach to antitrust. The result opens the door to politicized and unprincipled antitrust enforcement that will ultimately hurt rather than benefit consumers.

The FTC is the nation’s primary consumer protection agency, focused on ensuring a healthy market that avoids the dangers of monopolistic practices. The statement on the agency’s antitrust enforcement had been uncontroversial up to this point. A bipartisan group of commissioners passed the statement in 2015—during the Obama Administration—and the statement primarily clarified that the FTC’s antitrust enforcement under Section 5 of the FTC Act concerning the agency’s authority over unfair and deceptive trade practices was guided by consumer welfare. In other words, the FTC would focus on those acts that cause or are likely to cause harm to consumers, based on objective economic analysis rather than the effects of business moves on competition itself or other policy standards. The statement sought to provide clarity to consumers and businesses, and in fact, the sole vote against it was on the basis that the statement was too abbreviated to provide meaningful guidance.

Despite these uncontroversial origins, on Thursday at a hastily announced open meeting, the current FTC voted 3-2 to withdraw this statement. The withdrawal of the FTC’s statement is the latest signal that antitrust policy, particularly at the FTC, is shifting away from focusing on consumers and using the consumer welfare standard.  Instead, there are now real concerns the FTC will enforce antitrust policy in a way that promotes competitors or ideology at consumers’ expense.

Most specifically, rejecting the consumer welfare standard signals the FTC may apply its enforcement power in more subjective ways based in changing political motives and policy preference, as was seen in earlier eras of antitrust enforcement. For example, if not focused on the consumer welfare standard, the FTC could act against some of the largest tech companies to break them up or prevent mergers even though consumers were not harmed—or were even helped—by these changes in the market. This shift would have three specific, if related, implications.

First, it would undermine confidence among consumers in the FTC’s actions. It is far less clear now by what standards antitrust enforcement will be guided and if they are truly objective. As a result, it is unclear what the purpose behind enforcement is.

Second, such expansive enforcement could diminish the options available to consumers. Without the consumer welfare standard, aggressive antitrust enforcement could lead to regulatory interventions in competitive and dynamic markets apart from a data-based and consumer-focused analysis. The result of such unnecessary enforcement could be to raise costs or eliminate products, preventing consumers from having access to products they enjoy or face higher prices, not because of unfair or anti-competitive behavior but because of political animus against a particular industry.

Finally, this shift away from the consumer welfare standard is likely to result in inefficient markets. Unprincipled or politically motivated enforcement could result in some products and services never making it to consumers. In other cases, markets may find certain “competitors” kept alive past their value, or other markets could remain with few choices because companies fear that entrance would be considered anticompetitive. Without the consumer welfare standard, misguided notions of concentration or “bigness” could result in a less beneficial market and instead benefit competitors with inferior products that would not have otherwise survived—all to the detriment of consumers.

When regulators move away from an objective, consumer-focused approach to antitrust, it is ultimately the consumers who are harmed in the form of higher prices, inferior products, and less innovation. As Commissioner Christine Wilson stated prior to the vote, “If the Commission is no longer focused on consumer welfare then consumers will be harmed.”

Discourse magazine has just published my latest essay, “‘Japan Inc.’ and Other Tales of Industrial Policy Apocalypse.” It is a short history of the hysteria surrounding the growth of Japan in the 1980s and early 1990s and its various industrial policy efforts. I begin by noting that, “American pundits and policymakers are today raising a litany of complaints about Chinese industrial policies, trade practices, industrial espionage and military expansion. Some of these concerns have merit. In each case, however, it is easy to find identical fears that were raised about Japan a generation ago.” I then walk through many of the leading books, opeds, movies, and other things from that past era to show how that was the case.

“Hysteria” is not too strong a word to use in this case. Many pundits and politicians were panicking about the rise of Japan economically and more specifically about the way Japan’s Ministry of International Trade and Industry (MITI) was formulating industrial policy schemes for industrial sectors in which they hoped to make advances. This resulted in veritable “MITI mania” here in America. “U.S. officials and market analysts came to view MITI with a combination of reverence and revulsion, believing that it had concocted an industrial policy cocktail that was fueling Japan’s success at the expense of American companies and interests,” I note. Countless books and essays were being published with breathless titles and predictions. I go through dozens of them in my essay. Meanwhile, the debate in policy circles and Capitol Hill even took on an ugly racial tinge, with some lawmakers calling the the Japanese “leeches.” and suggesting the U.S. should have dropped more atomic bombs on Japan during World War II. At one point, several members of Congress gathered on the lawn of the U.S. Capitol in 1987 to smash Japanese electronics with sledgehammers. Continue reading →

By: Jennifer Huddleston and Juan Martin Londoño

This year the E3 conference streamed live over Twitch, YouTube, and other online platforms—a reality that highlights the growing importance of platforms and user-generated content to the gaming industry. From streaming content on Twitch, to sharing mods on Steam Workshop, or funding small developing studios on services such as Patreon or Kickstarter, user-generated content has proven vital for the gaming ecosystem. While these platforms have allowed space for creative interaction—which we saw on the livestreams chats during E3—the legal framework that allows all of this interaction is under threat, and changes to a critical internet law could spell Game Over for user-created gaming elements.

 

This law, “Section 230,” is foundational to all user-generated content on the internet. Section 230 protects platforms from lawsuits over both the content they host as well as their moderation decisions, giving them the freedom to curate and create the kind of environment that best fits its customers. This policy is under attack, however, from policymakers on both sides of the aisle. Some Democrats argue platforms are not moderating enough content, thus allowing hate speech and voter suppression to thrive, while some Republicans believe platforms are moderating too much, which promotes “cancel culture” and the limitation of free speech.

 

User-generated content and the platforms that host it have contributed significantly to the growth of the gaming industry since the early days of the internet. This growth has only accelerated during the pandemic, as in 2020 the gaming industry grew 20 percent to a whopping $180 billion market. But changing Section 230 could seriously disrupt user-generated engagement with gaming, making content moderation costlier and riskier for some of gamers’ favorite platforms.

Continue reading →

I write about telecom and tech policy and have found that lawmakers and regulators are eager to learn about new technologies. That said, I find that good tech policies usually die of neglect as lawmakers and lobbyists get busy patching up or growing “legacy” policy areas, like public pensions, income taxes, Medicare, school financing, and so forth. So it was a pleasant surprise this spring to see Arizona lawmakers prioritize and pass several laws that anticipate and encourage brand-new technologies and industries.

Flying cars, autonomous vehicles, telehealth–legislating in any one of these novel legal areas is noteworthy. New laws in all of these areas, plus other tech areas, as Arizona did in 2021, is a huge achievement and an invitation to entrepreneurs and industry to build in Arizona.

Re: AVs and telehealth, Arizona was already a national leader in autonomous vehicles and Gov. Ducey in 2015 created the first (to my knowledge) statewide AV task force, something that was imitated nationwide. A new law codifies some of those executive orders and establishes safety rules for testing and commercializing AVs. Another law liberalizes and mainstreams telehealth as an alternative to in-person doctor visits. 

A few highlights about new Arizona laws on legal areas I’ve followed more closely:

  1. Urban air mobility and passenger drones

Arizona lawmakers passed a law (HB 2485) creating an Urban Air Mobility study committee. 26 members of public and private representatives are charged with evaluating current regulations that affect and impede the urban air mobility industry and making recommendations to lawmakers. “Urban air mobility” refers to the growing aviation industry devoted to new, small aircraft designs, including eVTOL and passenger drones, for the air taxi industry. Despite the name, urban air mobility includes intra-city (say, central business district to airport) aviation as well as regional aviation between small cities.

The law is well timed. The US Air Force is giving eVTOL aircraft companies access to military airspace and facilities this year, in part to jumpstart the US commercial eVTOL industry, and NASA recently released a new study (PDF) about regional aviation and technology. NASA and the FAA last year also endorsed the idea of urban air mobility corridors and it’s part of the national strategy for new aviation.

The federal government partnering with cities and state DOTs in the next few years to study air taxis and to test the corridor concept. This Arizona study committee might be to identify possible UAM aerial corridors in the state and cargo missions for experimental UAM flights. They could also identify the regulatory and zoning obstacles to, say, constructing or retrofitting a 2-story air taxi vertiport in downtown Phoenix or Tucson.

Several states have drone advisory committees but this law makes Arizona a trailblazer nationally when it comes to urban air mobility. Very few states have made this a legislative priority: In May 2020 Oklahoma law created a task force to examine autonomous vehicle and passenger drones. Texas joined Oklahoma and Arizona on this front–this week Gov. Abbot signed a similar law creating an urban air mobility committee.

  1. Smart corridor and broadband infrastructure construction

Infrastructure companies nationwide are begging state and local officials to allow them to build along roadways. These “smart road” projects include installing 5G antennas, fiber optics, lidar, GPS nodes, and other technologies for broadband or for connected and autonomous vehicles. To respond to that trend, Arizona passed a law (HB 2596) on May 10 that allows the state DOT–solely or via public-private partnership–to construct and lease out roadside passive infrastructure.

In particular, the new law allows the state DOT to construct, manage, and lease out passive “telecommunication facilities”–not simply conduit, which was allowed under existing law. “Telecommunication facilities” is defined broadly:

Any cable, line, fiber, wire, conduit, innerduct, access manhole, handhole, tower, hut, pedestal, pole, box, transmitting equipment, receiving equipment or power equipment or any other equipment, system or device that is used to transmit, receive, produce or distribute by wireless, wireline, electronic or optical signal for communication purposes.

The new Section 28-7383 also allows the state to enter into an agreement with a public or private entity “for the purpose of using, managing or operating” these state-owned assets. Access to all infrastructure must be non-exclusive, in order to promote competition between telecom and smart city providers. Access to the rights-of-way and infrastructure must also be non-discriminatory, which prevents a public-private partner from favoring its affiliated or favored providers. 

Leasing revenues from private companies using the roadside infrastructure are deposited into a new Smart Corridor Trust Fund, which is used to expand the smart corridor network infrastructure. The project also means it’s easier for multiple providers to access the rights-of-way and roadside infrastructure, making it easier to deploy 5G antennas and extend fiber backhaul and Internet connectivity to rural areas.

It’s the most ambitious smart corridor and telecom infrastructure deployment program I’ve seen. There have been some smaller projects involving the competitive leasing of roadside conduit and poles, like in Lincoln, Nebraska and a proposal in Michigan, but I don’t know of any state encouraging this statewide.

For more about this topic of public-private partnerships and open-access smart corridors, you can read my law review article with Prof. Korok Ray: Smart Cities, Dumb Infrastructure.

  1. Legal protections for residents to install broadband infrastructure on their property

Finally, in May, Gov. Ducey signed a law (HB 2711) sponsored by Rep. Nutt that protects that resembles and supplements the FCC’s “over-the-air-reception-device” rules that protect homeowner installations of wireless broadband antennas. Many renters and landowners–especially in rural areas where wireless home Internet makes more sense–want to install wireless broadband antennas on their property, and this Arizona law protects them from local zoning and permitting regulations that would “unreasonably” delay or raise the cost of installation of antennas. (This is sometimes called the “pizza box rule”–the antenna is protected if it’s smaller than 1 meter diameter.) Without this state law and the FCC rules, towns and counties could and would prohibit antennas or fine residents and broadband companies for installing small broadband and TV antennas on the grounds that the antennas are an unpermitted accessory structure or zoning violation.

The FCC’s new 2021 rules are broader and protect certain types of outdoor 5G and WiFi antennas that serve multiple households. The Arizona law doesn’t extend to these “one-to-many” antennas but its protections supplement those FCC rules and clearer than FCC rules, which can directly regulate antennas but not town and city officials. Between the FCC rules and the Arizona law, Arizona households and renters have new, substantial freedom to install 5G and other wireless antennas on their rooftops, balconies, and yard poles. In rural areas especially this will help get infrastructure and small broadband antennas installed quickly on private property.

Too often, policy debates by state lawmakers and agencies are dominated by incremental reforms of longstanding issues and established industries. Very few states plant the seeds–via policy and law–for promotion of new industries. Passenger drones, smart corridors, autonomous vehicles, and drone delivery are maturing as technologies. Preparing for those industries signals to companies and their investors that innovation, legal clarity, and investment is a priority for the state. Hopefully other states will take Arizona’s lead and look to encouraging the industries and services of the future.