Alberto Mingardi is understandably unimpressed with Mariana Mazzucato’s new book on industrial policy. Here’s a slice from Alberto’s review:
Mazzucato’s case for industrial policy suffers from selective history and intellectual hubris. It conveniently refrains from investigating countries like Italy that have prided themselves on enacting such a policy, while placing great faith in “visionary” intellectuals (such as herself) to foresee problems and direct resources toward solutions. Yet most problems and solutions are discovered day after day, in the messy endeavors and transactions we call markets. Intellectuals find it hard to understand how to assemble Ikea furniture, let alone what decisions have to be made to bring furniture to the stores. We the learned in economics, the social sciences, or literature are ignorant of how our own computers work and how the paint for our homes is produced. There’s nothing wrong with that—it’s simply a function of the complexity of a modern society, which no single mind, not even the most brilliant, can successfully master. Here another Reagan joke is apt: “The best minds are not in government. If any were, business would steal them away.” As the American proverb puts it, “If you’re so smart, why aren’t you rich?” The question is surely relevant to Mazzucato’s bizarre confidence that governmental foresight is easy.
The political benefits of industrial policy are easy enough to spot. Politicians can stand in front of a subsidized factory and proclaim that it would not be there but for their intervention. They can point to the new capital and the new jobs created. They can even proclaim that these benefits will ripple out to the broader economy, thanks to the vaunted multiplier effect.
Targeted privilege has costs, however. Indeed, it often fails altogether. The history of industrial policy and state-based economic development efforts is littered with a long string of costly boondoggles that ultimately did little to benefit growth, jobs, competitive advantage or consumer welfare. Proponents will point to a few “wins” without mentioning the many “losses,” let alone providing a fuller account of all the costs—both direct and indirect—of their planning and spending efforts.
The melody is Burke’s liberalism in policy, within the framework of a stable polity. The book is impressive in its thoroughness on Burke on issue after issue, focusing on his words and deeds. Born in 1729, Burke was a member of Parliament for 29 years and died in 1797. Collins delves into the major issues of Burke’s career, involving Ireland, India, the American colonies, and of course France, but also many obscure issues, such as the Butcher’s Meat Bill.
Burke favored liberal policy presumptions, as rang clear in his Thoughts and Details on Scarcity. But of course Burke did things that could reasonably be seen as compromises and feints, as one should expect of any politico, including a true statesman. On the British East India Company, Burke worked to open up market competition, to rein in the company’s political abuses, and to bring greater accountability, while Adam Smith advised bringing an end to its charter altogether.
One of the more interesting Nobel Prize winners they discuss is British economist James Mirrlees, an adviser to the Labour Party, who was co-winner of the 1996 award for his theory of optimal taxation. His famous two results were that because of the damaging effect of income taxes on incentives, the marginal tax rate on the top earner should be zero and most tax rates should be between 20 and 30 percent. As I noted in my October 1996 Wall Street Journal article, “When Economics Rises Above Politics,” Mirrlees was stunned by his own result. “I must confess,” he wrote, “that I had expected the rigorous analysis of income taxation in the utilitarian manner to provide arguments for high tax rates. It has not done so.” Indeed.
The essence of progressivism’s agenda is to create a government-centered society by increasing government’s control of society’s resources, then distributing those resources in ways that increase the dependency of individuals and social groups on government. Hence this stipulation in Congress’s just-enacted $1.9 trillion money shower: None of the $350 billion allocated for state governments can be used to finance tax cuts.
So, the federal government is using the allocation of society’s financial resources to state governments to coerce them into maintaining their existing claims on such resources. This illustrates how progressives try to implement a leftward-clicking ratchet.