… is from pages 128-129 of the recently released (2020) work – co-published by the Adam Smith Institute and AIER – by Deirdre McCloskey and Alberto Mingardi, The Myth of the Entrepreneurial State:
The statist faith [in industrial policy] is like thinking that your laptop in 2021 was envisioned in 1981 by IBM technicians making the first desktop computer. It infers direction and rationality, and therefore the efficacy of central planning ex ante, from a complex evolutionary result, ex post. It is similar to the inference to a Maker from the complexity of the eye. But in fact the products and processes evolve in the economic world in the way the eye evolved, by a back and forth between producers and consumers, as between biological variation and its environment. Bottom-up, as we keep saying.
DBx: Looming large among the many offenses committed by advocates of industrial policy is their wish to remove from the economic picture the consumer. Oh, there will continue to be, under industrial policy, consumption. People gotta be fed, clad, and housed. But what there will not be is the consumer – the person who is free to spend his or her income in ways that he or she chooses.
The reason is straightforward. Insofar as income earners are free to spend as they choose, their spending will almost certainly be inconsistent with the production plans that form the industrial-policy scheme.
Suppose that consumers prefer lighter and less-expensive cars made of aluminum or carbon-fiber to heavier ones made with steel. If consumers are allowed to express this preference by buying lighter-weight vehicles in lieu of heavier ones, the demand for domestically produced steel might well be inadequate to ensure profitable domestic production of the full amount of steel that is planned for by industrial-policy makers. If so, consumers must be prevented from expressing this preference. Were consumers allowed to express this preference, the details of the industrial-policy plan would have to be revised to accommodate this revealed consumer preference – in which case the very point of industrial policy would be undermined.
Industrial policy, although typically marketed as a scheme for enriching the masses, is by its nature no such thing. Or, at least, it’s no such thing as long as the mortals who design and implement such policies are denied superhuman knowledge and prescience. Industrial policy is necessarily, in practice, a scheme for maintaining certain patterns of production, ones envisioned by the bureaucrats (with help, perhaps, from their intellectual advisors) charged with carrying out industrial policy.
Compelled to consume only in ways that are consistent with the The Plan, individuals in their role as consumers are made to serve the The Plan. Consumers must be compelled to spend in ways that ensure that production plans are able to be carried out as envisioned by the bureaucrats who designed these plans. The particular, bureaucratically chosen details of production become the end to be pursued; consumption spending is reduced to being a mere means of ensuring the the fulfillment of the production Plan.
By making consumption the means and production the end, industrial policy practically guarantees, at best, economic stagnation. Consumer preferences and desires are no longer what producers seek to satisfy as fully as possible. With producers no longer aiming at improving the satisfaction of consumer preferences – and, importantly, also no longer aiming at enabling consumers to discover new preferences that rank highly – genuine innovation and economic growth stop.
One more observation: By removing the consumer from the economic picture, industrial policy also removes the entrepreneur. The entrepreneur, after all, is someone who seeks profit by finding better ways to satisfy consumer preferences. Because industrial policy must prevent consumers from responding to entrepreneurial innovation – for such response would disrupt The Plan – industrial policy has no role for entrepreneurs.
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Industrial-policy advocates – ones on the right, such as Oren Cass and Marco Rubio, and ones on the left, such as Robert Reich and Elizabeth Warren – of course deny the above. But such denials spring from the reality that industrial-policy proponents never both to think seriously about just what it is they are proposing. Read any proposal for industrial-policy: In the end it never amounts to anything more than the assertion that government officials with the power to override consumer and investor choices will allocate resources better than resources will be allocated through competitive markets.
Anyone can make such an assertion. But no one can explain just how imperfect human beings put in charge of allocating resources bureaucratically will get the knowledge they need to out-perform competitive markets. In short, all proposals for industrial policy are premised on a “Then a miracle occurs” step.
