Opinion: Least surprising election result is a bipartisan setback

Supporters of Vice President Kamala Harris will certainly experience disappointment, but one of the pillars of the Biden-Harris administration — “industrial policy” — won big on Tuesday. That’s because it has already been embraced by both parties. President-elect Donald Trump likes expensive tariffs, and Harris likes big subsidies to big companies, and to some extent vice versa.

That, my friends, should disappoint us all. Industrial policy represents one of the most dangerous economic illusions of our time.

It is often presented as a populist program, but is usually implemented in a way that makes it no different from the worst crony programs. According to my friend Sam Gregg – an expert on the subject at the American Institute for Economic Research and author of the excellent book ‘The Next American Economy’ – industrial policy involves “trying to change the allocation of resources and incentives in certain economic sectors that otherwise would happen if entrepreneurs and companies were left to their own devices.”

It is also known by another name: central planning.

Industrial policy instruments include the provision of subsidies, tax preferences, trade protection, preferential financing and regulatory benefits. To be fair, we already have enough of that, including a tax code full of exemptions for special interests and a budget full of costly subsidies. What makes industrial policy distinctive is that it singles out certain economic activities to promote in attempts to reorder our economic landscape – sometimes even for cultural reasons.

Democrats use it to force a transition from energy sources they hate. They use mandates, subsidies and tax incentives to permanently change the way we consume energy nationally, whether we want them to or not. Meanwhile, many Republicans want to impose tariffs that push more people into manufacturing jobs and encourage women to stay home, making America look more like it did in the 1950s.

Both parties want to force some people into activities that are not in their interests. To achieve a national order that intellectuals and politicians prefer to the current one, the economy must suffer.

While industrial policy can focus money on specific goals or industries, it often fails to deliver on its promises and does not contribute to the real improvement of our culture and communities. When governments attempt to direct industrial development through subsidies, targeted tax breaks, and preferential treatment, they inevitably distort the market signals that efficiently allocate resources.

A clear example is Boeing. Decades of subsidies and special treatment have not made the company more innovative or competitive. Instead, they produced a culture of dependency in which political connections trump customer satisfaction.

The same pattern repeats itself across all sectors, from green energy to semiconductors. Government intervention does not create sustainable competitive advantages for America; it creates politically protected incumbents who become experts at lobbying rather than innovating. When incumbents lose their edge and their projects fail, they come back for money. Politicians who hate to see their “national champions” fail are expanding more subsidies and tariffs.

Some people worry that this is exactly what will happen to Intel. Despite being the largest recipient of the Biden administration’s semiconductor industry policy – the federal CHIPS and Science Act – Intel has had cash problems, largely due to poor business decisions. As Semafor reports, top Commerce Department officials and members of Congress are considering whether to give more handouts to the company because “Intel is seen as too strategically important to be in serious trouble.”

Protecting a company from the discipline of the market virtually guarantees that things will get worse rather than better. It doesn’t help that politicians often saddle beneficiaries with counterproductive demands. Consider the news that the Environmental Protection Agency has distributed $3 billion in Clean Ports Program funds from the Inflation Reduction Act, on the strict condition that ports not use automation. Welcome to the Stone Age of industrial policy, where “keeping America competitive” doesn’t mean keeping costs down for us consumers through efficiency.

Another big problem with industrial policy is that the money goes to companies that don’t need it, and things get done that would have been done without the subsidies. The National Review’s Dominic Pino reminds us that another major beneficiary of the CHIPS Act, Taiwan Semiconductor Manufacturing Co., “announced in May 2020 its intention to invest $12 billion to build a factory in Arizona. That was over a year before the CHIPS Act was introduced, and over two years before it became law.”

I wish I had better news. If Trump and Congress do not take steps to move away from central planning, we will pay a high price.

— Veronique de Rugy is a columnist at Creators.