Is the Pursuit of Industrial Policy Socialism?

Countless objections will be raised to the implementation of an industrial policy in the United States. But there are powerful answers. Here are a few to be considered:

• Objection: The U.S. government always makes a mess of things, and any money to stimulate U.S. manufacturing would just be wasted. Business should be left to the private sector.

My response: It is certainly very regrettable that government policy mistakes led to the debilitation of the U.S. economy and the New Depression. At this point, however, only the government is large (and creditworthy) enough to carry out investments on the scale needed to restructure the economy.

If the U.S. government does not act, the money will really end up being squandered — on wasteful government life-support programs.

• Objection: An industrial policy would transform the United States into a socialist country.

My response: The United States already has a managed economy — but one which is mismanaged. To be sure, it is not managed equitably enough to be termed socialist. And it is not managed efficiently enough to avoid severe economic decline — unless changes are made.

Any attempt to go cold-turkey and return to pre-1930 capitalism would result in economic collapse as soon as U.S. government life support was withdrawn.

The only viable option left is much more intelligent economic management. Only after the country reestablishes a viable, self-sustaining economic structure will the United States have a hope of returning to a free-market economy functioning within an economically orthodox framework. But that is certainly not the economic system the country has today.

• Objection: A $3 trillion investment program could not be financed.

My response: It could easily be financed. Adding $3 trillion to the $10 trillion that the U.S. government is likely to have to borrow to fund its deficits over the next ten years would leave the ratio of government debt-to-GDP at less than 100%. Japan’s ratio of government debt-to-GDP will hit 225% in 2010.

Moreover, after the U.S. government’s $1 trillion investment in biotechnology and genetic engineering yields a cure for cancer, it will not take long to pay off the entire government debt. The only real threat that could make an investment program on this scale unaffordable would be a derivatives-induced meltdown of the financial sector that could cost the government trillions or tens of trillions of dollars to clean up.

Should that occur, it would be better to sacrifice the financial industry than to abandon the economic restructuring plan. Finance is a sunset industry.

• Objection: $3 trillion would not be enough.

My response: A trillion dollars is an enormous amount of money, even in today’s world. Three trillion would produce miracles. However, if that sum failed to make the U.S. economy self-sustaining, double it: $6 trillion certainly would. There is every reason to believe that even $6 trillion could be easily financed.

• Objection: Other countries would oppose a large-scale investment program by the U.S. government.

My response: That is very likely. Nevertheless, the world is dependent on exporting to the United States. The rest of the world will benefit from a healthy American economy. There will be no winners if the U.S. economy goes into terminal decline.

• Objection: Government ownership of such important industries would make government too powerful and would pose a threat to democracy.

My response: True. The investments in those industries would have to be managed as national trusts with very carefully thought out management structures involving checks and balances to prevent the abuse of power. This is a concern not to be dismissed lightly.

Editor’s Note: This feature is adapted from CORRUPTION OF CAPITALISM by Richard Duncan, published by CLSA Books. Copyright 2010 Richard Duncan. Reprinted with permission of the author.

This is Part III of a three-part series. You can read Part I here and Part II here.