Embrace Chinese Industrial Policy, Not Eliminate It

It is becoming increasingly hard to make the case that a minimalist state which simply acts as an umpire for the creation of efficient markets is even close to being a sufficient condition for a dynamic capitalist economy.

Economist and market practitioner Bill Janeway observed that state-driven innovation have been “put to repeated and successful use: by Japan beginning in the last decades of the nineteenth century, then by the emergent Asian Tigers in the second half of the twentieth century and now by China.”

Washington need not mindlessly copy Beijing’s more coercive model but, rather, could well achieve similar outcomes via state-led purchases and subsidies. The Defense Department could play a key role here as it has in the past. The key takeaway raised by Atkinson’s excellent study, however, is that the status quo is untenable. America’s market fundamentalist model is under enormous stress and failing to produce anything close to a socially sustainable economy. The U.S. has not turned into an industrial shell overnight; it is the product of decades of malign neglect. Hence, it will take many years before the current deficiencies are fixed. As the philosopher Lao Tzu argued: “The journey of a thousand miles begins with one step.” Absent these initial steps, national redevelopment will remain a pipedream.

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