The Editor of Time Magazine, Fareed Zakaria, has penned a transformative article - The Case for Making It in the USA. How is it transformative? Check this out,
President Obama spoke forcefully in his Jan. 24 State of the Union address about the importance of reviving manufacturing in America. Economists tell us it’s a complex matter involving tax, trade and regulatory policy, exchange rates and educational skills. It is. But when you move from high-level policy to specific cases, you will often find one element that is rarely talked about: a foreign government’s role in boosting its domestic manufacturers with specific loans, subsidies, streamlined regulations and benefits. In effect, these governments–many in Asia, though some in Europe as well–have a national industrial policy to help manufacturers.
In theory, I am deeply skeptical of government industrial policy. Government doesn’t know how to pick winners and losers, it will make mistakes, and the process will get politicized. All this is true. And yet when I look at China and South Korea and also Germany and Japan, I see governments playing a crucial role. They do make mistakes–their versions of Solyndra–but they seem to view them the way venture capitalists would. Their role is to seed many companies, only a few of which will succeed. Once these companies are identified, government helps them compete against big U.S. multinationals. There used to be a joke about Marxist economists who would say of a deviation from pure communist economics: “It might work in practice, comrade, but it doesn’t work in theory.” That’s what industrial policy looks like these days. The theory doesn’t make sense, but it’s hard to argue with the result.
Let’s hope that Mr. Zakaria making the jump from textbook economics to reality is contagious and Capital Hill is infected. We have let American jobs disappear for too long while building other nations that have no problem laughing at us while we sing Polyanna Free Trade songs.