Political Economy and the Promise and Limits of (Green) Industrial Policy

The Big Questions

• What has the path of global capitalism been over the last half century or so?
  • Have we been in a period of stagnation? Or a period of growth?
  • What’s happening to the working class? How has it changed?

One Answer: Robert Brenner and the Long Downturn

• Robert Brenner, a Marxist economic historian, argues that since the 1970s the capitalist world has been mired in crisis.
  • This crisis is rooted in persistent overcapacity in manufacturing, which has driven down profitability in that sector and dragged down the economy has a whole.
  • This doesn’t mean there’s constant economic crisis. Rather, it means that the kind of coordinated growth we saw during the “golden age” of postwar capitalism, where all major economies are growing at once, isn’t possible. Instead, national economies can only grow by squeezing out their rivals.
• This account has been particularly influential with sections of the ultra-left (California insurrectionists) as well as the broader New Left Review milieu.
  • For some, Brenner’s account is proof of the exhaustion of reformism. Attempts to win reforms are pointless because the long downturn means capitalists have no room for compromise, and will fight reforms with the same intensity they’d fight revolution.

The Big Picture

Some Thoughts

• It’s prima facie implausible that the same dynamics the caused crisis in the 1970s are causing crisis in the global economy today.
• Brenner’s picture grows even more implausible given the decline of manufacturing in the global economy. It seems very unlikely that a sector comprising ~10% of the the US economy is determining the economy’s trajectory.
• In general, I think we should be wary of basing our politics on on one hyper-specific analysis of the global economy.

The Question of Economic Policy Regimes

• The question of how to characterize and explain economic policy is closely related to, but distinct from, the question of how to characterize and explain the global economy.
• Neoliberalism is best thought of as a kind of economic policy (as well as the associated justifications for that policy).
  • As policy, neoliberalism generally includes some combination of budgetary austerity, privatization, deregulation, and tax cuts.
  • While there’s obviously something to this, it’s also important not to underestimate the durability of the welfare state.

More Questions

• One of the biggest questions for the left today in the United States is if neoliberalism is in fact ending. In other words, has there been a fundamental reorientation in American economic policy?
  • Additionally, is this reorientation, assuming it exists, good? Or is it a reorientation still fundamentally tethered to capitalist interests that offers little for workers?
  • If there has been a reorientation, what does this tell us about the Democratic Party?

Industrial Policy Then

• All of this comes together in the moves towards industrial policy the Biden administration has made recently.
  • Industrial policy is a form of economic planning within capitalism. It’s when the state tries to shape the direction of economic development by promoting or inhibiting certain sectors.
  • Often this is done because certain sectors have linkages with the rest of the economy such that their growth will promote overall economic growth, or their employment effects are particularly important, or their products are important for reasons of national security.
  • The class politics of industrial policy are complex. It’s often a mix of carrots and sticks for capitalists. Subsidies, requirements of permission to make certain investments, capital controls, public procurement, etc.
  • Some of these things, like subsidies, capitalists will always want. Others, like capital controls or control over investment, most capitalists will resist most of the time.
  • Because of this, there’s always a risk that industrial policy will become simply a giveaway to capitalists, with the parts that discipline capital defeated and the parts that reward capital enacted.
  • This is the story of industrial policy in most late-developing countries.
  • Throughout the advanced capitalist world, industrial policy has been an extremely important component of economic policy. From indicative planning in France to Japan’s Ministry of International Trade and Industry.
• The US has generally not had much industrial policy.
  • There was a tariff to protect manufacturing from the late 1850s to 1934.
  • Government involvement in railroads and telecommunications in th 19th century and early 20th.
  • There was extensive planning during WWI and WWII, and a brief experiment with peacetime planning during the Great Depression (the Tennessee Valley Authority being the only part that endured).
  • “America has had three types of industrial policy: first, World War II, second, the Korean War, and third, the Vietnam War.”

Industrial Policy Now

• All of this has changed with the CHIPS Act and the Inflation Reduction Act.

  • CHIPS Act: $280 billion for semiconductor research, including $50 billion for subsidies for domestic semiconductor manufacturing.
  • Inflation Reduction Act: $370 billion for climate. Lots of rebates for cool things like ebikes and heat pump installation. Fines fossil fuel companies for methane leaks. Funds for climate resilience for exposed areas. Also a 15% minimum tax for corporations over 1 billion dollars!
    • Very important: these funds are disbursed through direct payment, not tax credits. This means they can be used by state and local governments to fund green investment! Huge boost to state directed investment and construction.
    • Plus, some big boosts for unions. Companies receiving subsidies are required to pay union scale and use union apprenticeship, and companies are forbidden from using funds to oppose unionization. USW in Georgia just won an election at a factory making electric buses, and filed UFLP complaints regarding provisions of the IRA etc.

Derisking or Development?

How the left should judge these initiatives?

• Dylan Riley’s critique is that global overcapacity, a la Brenner, means that funding industrial development like this will only exacerbate overproduction, pushing down profit rates and requiring further demand stimulus of the sort that’s given us these huge financial bubbles.
  • I don’t think there’s very much to this critique. Let’s say all of that is 100% true. If it results in a major decarbonization of the economy, seems like a win.
  • Moreover, as JW Mason points out, this perspective assumes there’s a fixed amount of demand, and that industrial capacity can overflow it. But if the policies successfully reduce energy and semiconductor costs, that’s equivalent to a rise in real incomes and hence demand.
  • Finally, this critique is entirely premised on Brenner’s very specific economic analysis being correct.
• In my opinion, a far more serious critique of Biden’s policy comes from the economist Daniela Gabor.
  • Gabor’s argument is that what finance wants is “de-risking.” They want the state to assume part of the risks of investment in clean energy etc.
    • There are a few problems with de-risking. First, the fiscal space these subsidies take up necessarily crowds out public spending, reinforcing market dominance. Private capital is still controlling the investment function.
    • Second, given the focus of firms on elevating their share price, the incentive is for firms to use these subsidies to fund stock buybacks, which do nothing but fatten financial sector profits.
• Nonetheless, I think there is a lot in the Biden administration’s industrial policy that takes us out of the derisking category and into the kind of industrial policy socialists should be excited about.
  • As mentioned, the direct pay feature of the IRA actually is building what Gabor calls “a big green state,” just on the state and local level. Not to put too fine a point on it, but given DSA’s influence in local politics in a place like New York, this can constitute a massive expansion of what we can actually do with local politics.
  • Second, there actually are a number of guardrails incorporated into Biden’s industrial policy that have the potential to ensure we aren’t simply derisking investors. The Department of Commerce, for example, has indicated that it is open to things like banning stock buybacks by companies receiving these funds. There’s a lot more of these guardrails that should be in discussion, but the very fact that these policies have put the possibility of such discipline of capital on the table is an indication of how they’ve changed the economic policy environment.

Takeaway: Politics is about seizing opportunities, not pointing out that there aren’t any.

• As is no doubt clear, I think the Biden administration’s economic policy represents something we haven’t seen in the US since at least the Vietnam War: the development of a much more active state role in directing the economy. This is, quite simply, not neoliberal policymaking.
• This is a surprise. We should let ourselves be surprised. There is nothing radical about never being surprised by anything.