- Cafe Hayek - https://cafehayek.com -

Please, Let’s Have No “National Innovation Strategy”

Tweet [1]

Here’s a letter to National Review:


Samuel Hammond’s “Marco Rubio Wants a National Innovation Strategy [2]” (Feb. 15) is flawed in its history and its economics. Here are examples of each error.

As a matter of history, Mr. Hammond is mistaken to declare that “Every successful economic-development story has included national efforts to diversify industries, including our own.” In fact, no such “national effort” was responsible for the impressive U.S. economic growth fueled by such entrepreneurs as Cornelius Vanderbilt with steamships (quite the opposite! [3]), Cyrus McCormick with farm equipment, Gustavus Swift with meatpacking, J.D. Rockefeller with petroleum, Herbert Dow with chemicals, or Henry Ford with automobiles.

As a matter of economics, Mr. Hammond discredits his argument by quoting favorably this line from Sen. Marco Rubio’s attempt to justify U.S. industrial policy: “States place great value on capturing high-productivity, high-labor content industries, or developing new ones.”

States – that is, politicians – might well believe that economic growth springs from “high-productivity, high-labor content industries.” Economists, in contrast, understand that the lovely phrase “high-productivity, high-labor content industries” is an oxymoron. In reality, the higher the productivity of an industry the lower is its labor content.

Economic growth occurs as rising productivity, like increasing trade, releases labor from its current uses so that it becomes available to produce goods and services that would otherwise remain too costly to supply. Yet politicians, however much they might value high productivity, value high labor content far more. Therefore, real-world attempts by governments to pick industrial ‘winners’ will slow economic growth by diverting resources away from industries that use relatively little labor to produce each unit of output and toward industries that use relatively large amounts of labor to produce each unit of output – that is, toward industries that are highly productive only in procuring for politicians the votes of subsidized industrialists and their employees.

Donald J. Boudreaux
Professor of Economics
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA 22030