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There’s More to It Than That Which Meets the Eye

Here’s a letter to the Wall Street Journal:


Pleading for U.S. industrial policy, Rick Switzer and David Feith commit an error famously described by Frédéric Bastiat – namely, being enchanted by that which is seen while ignoring that which is unseen (“China Hit Some Bumps on Its Road to Semiconductor Dominance,” Sept. 22).

One can question the accuracy of Messrs. Switzer’s and Feith’s claim that China’s industrial policy unfairly hamstrings American rivals of Chinese producers; see, for example, research by Scott Lincicome and Alfredo Carrillo Obregon showing that investment in U.S. semiconductor production is quite robust. But even if we stipulate that this claim of Messrs. Switzer and Feith is accurate, it follows neither that Chinese industrial policy is successful nor that America should respond in kind.

What these authors don’t see is that which the Chinese necessarily sacrifice by diverting resources to politically favored producers. Which firms in China are artificially weakened, or annihilated altogether, by having resources stripped away from them by Beijing’s industrial-policy mandarins? Which advanced industries are failing to thrive in China because high-tech workers are directed by bureaucrats into semiconductor production? Which economic sectors are now floundering in that country only because the CCP forcibly shoves manufacturing resources and workers into building solar panels and ships?

Only by ignoring such questions can Messrs. Switzer and Feith conclude that “Beijing’s policy is finding success.” Because there’s no doubt that particular industries can be sustained with tariffs sufficiently high and subsidies sufficiently profuse, it’s not news that industries so favored in China are now growing. But there’s also no doubt that these ‘successes’ are bought at the terribly high price of the many unseen firms and industries in China that are artificially stymied in their growth. And because resource allocation is sure to be more wasteful when done by government officials spending other people’s money than when done by markets in which entrepreneurs and consumers spend their own money, industrial policy is a recipe for economic decline. We Americans should not mimic China’s economic self-destruction.

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