Czary Knights for American Manufacturing?

The Washington Post reported on Monday (June 17) that Michigan Sen. Gary Peters was gearing up to propose (in the newspaper’s words) “the creation of a new federal agency to chart a national industrial policy.  His inspiration for what he wants to call the National Institute of Manufacturing comes from the National Institutes of Health.”

“NIH,” Peters was quoted as saying, “does a great job of coordinating a strategic vision for health care.  Something similar should exist in manufacturing.”

Because of American Experiment’s ongoing project, “Great Jobs Without a Four-Year Degree,” I have an especially strong interest these days in invigorating and expanding manufacturing in Minnesota and the nation.  Usually, I’m more than happy to defer to my colleague John Phelan in economic matters of all sorts.  But I find it hard not to instantaneously cringe and scriven whenever reading or hearing about some kind of “national industrial policy.”

In a felicitous coincidence from yesteryear, one of the best things I’ve ever read about the damaging excesses and limitations of a national industrial policy was an essay by American Experiment’s first senior fellow, Prof. Ian Maitland, who still teaches at the University of Minnesota’s Carlson School of Management.  Titled “Who Won the Industrial Policy Debate?” and released by the Center 25 years ago, I trust you can guess his copiously documented answer.

To his qualified credit, Senator Peters emphasizes that most R&D would still be funded by manufacturers themselves.  “The NIH picks up those areas where the private sector, the pharmaceutical companies, might not be investing in research.  We’re not doing that in manufacturing.”  Good. Then, again, he does favor the appointment of a “Chief Manufacturing Officer of the United States” who would report directly to the president.  Can you say scary czary knights?

“In the early 1980s,” Professor Maitland wrote in 1994, “in the midst of unprecedented national naval-gazing – provoked by America’s perceived economic decline and flagging international competitiveness – an influential group of scholars and journalists began to preach the virtues of an American ‘industrial policy’ to reverse the nation’s supposed decline.”

Such activists included major Clinton administration players such as Robert Reich, Laura D’Andrea Tyson, and Ira Magaziner, who (Maitland continued) “saw a necessity for – indeed they embraced – an active role for government in promoting particular industries or firms whose health was vital to the welfare of the economy as a whole. . . . [T]hey argued that our attachment to laissez-faire economics had blinded us to the fact that the rules of the game in international trade had changed.”  Using semiconductors as his prime vehicle for analysis, this is how Maitland wrapped up.

The semiconductor industry does not seem to have played the critical role in national technological competitiveness that the activists anticipated.  This finding raises questions about the capacity of policy makers to identify industries that deserve public support because of their strategic importance to national competitiveness.  At least at the frontier, technology may be too fluid and dynamic to be managed by technocrats in Washington, DC – or Berkeley.

Currently recognized is that American economic growth and prosperity are cramped by too few skilled men and women in manufacturing, as well as in the trades and construction. This problem threatens to grow increasingly worse as highly skilled baby boomers continue to retire at enormous rates and are not succeeded by adequate numbers of sufficiently trained younger people.  Many observers, including Michigan’s junior senator this week, claim it’s precisely situations like this, among various others, that should activate greater federal involvement in how we do manufacturing, and industry more generally in the United States.  Washington, they say, should be more hands-on.

Sure, I say in return, so long as the hand at least roughly resembles Adam Smith’s.