Lavoie’s Lessons for Industrial Policy Planners

by on November 9, 2021 · 0 comments

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.

After identifying the many inconsistencies among these planners and their proposed schemes, Lavoie pointed out that these differences raised some obvious questions: Whose plan are we supposed to follow when proposed plans conflict? And how much stock should we place in the wisdom of industrial policy when the leading advocates cannot even agree on what sectors and technologies are worth preserving or promoting? It was a simply but powerful insight that should led us to calling into question anyone who tries to pretend that they have all the answers when it comes to industrial policy planning. And, as I argue in my new essay, this insight helps us identify the continuing intellectual schizophrenia among industrial policy planners and schemes today. If you jump over to my longer piece, you’ll see my breakdown of all this, but it’s plotted here:

In the end, I conclude that:

The limitations of industrial policy exist regardless of the policymaker’s intentions. There are no “good guys” versus “bad guys” when it comes to industrial policy efforts; there are just many people with many different technocratic plans, all of which are constrained by limited knowledge and resources.

Moreover, Lavoie most important piece of relevant advice is the simple adage that, if you find yourself in a hole, it is wise to stop digging. Constantly doubling down on planning efforts is not going to help governments escape the problems created by their earlier interventions. Unfortunately, this is exactly what many industrial policy advocates do: They insist that America already has an industrial policy, but that it lacks the sort of conscious design or coherent form or direction they desire. But that is the typical sort of hubris and folly we’ve always heard from planners. They always think there’s a proverbial “better path” out there and want us to imagine that they can lead us down it with wiser planning that avoids all the problems of all those past failed planning efforts.

As Lavoie taught us long ago, we’d be wise to reject their various schemes and recommendations. “In light of the inherent deficiencies of central planning, it might be argued that the U.S. should instead try to reduce current government interference with the competitive process to the absolute minimum consistent with other political goals,” he concluded. It remains wise advice for today’s policymakers.


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