My former Mercatus Center colleague Adam Thierer busts prevalent myths about industrial policy. Two slices:
In the race for global tech supremacy, the United States will not beat China by becoming China, as many pundits today effectively argue it will. America should instead re-embrace and extend the innovation culture that made our nation’s information-technology sector a global powerhouse: open markets, skilled workers, vibrant capital markets, and flexible public policies that reward bold entrepreneurial endeavors.
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Writing in the American Conservative recently, Wells King of American Compass offers a concise articulation of this new thinking. Channeling President Barack Obama’s infamous 2012 “you didn’t build that” speech, King decries the so-called “founding myth” of the information-technology sector, and claims that “Silicon Valley was the product of aggressive public policy” and enlightened technocratic design. He also rails against the idea that America’s digital-era ethos of “permissionless innovation” had anything to do with the success of the internet, insisting instead that the system’s Cold War–era origin as a government-subsidized network constitutes “a remarkable success of industrial planning.”
This is revisionist history of the highest order. Science writer Matt Ridley calls this sort of thinking “innovation creationism,” or the notion that it basically takes a village to raise an innovator. Supporters of grandiose industrial-policy planning and splashy public-spending programs ignore all the inefficiencies, cost overruns, cronyism, and bad bets on economic-development gambits that were almost doomed to fail from the start. Revisionists such as King prefer instead to cherry-pick a few stories in which government seems to have helped, and then suggest that the economy be reorganized according to a grand new top-down blueprint, specifying which types of innovation will get public support.
While King blithely claims that, “The customer is always right—especially when the customer is the Pentagon,” in a great many cases the military-industrial complex has chosen badly when betting on future technologies. The three-decade, $1.7 trillion F-35 Joint Strike Fighter project managed to incur billions in cost overruns, while in the realm of space, the International Space Station’s price tag ballooned from the $17 billion to $74 billion.
Meanwhile, the internet only blossomed after its commercial opening in the early 1990s. Before that, businesses and the public were not allowed on the U.S. Advanced Research Projects Agency Network (ARPANET), the predecessor to what would become the internet. The network was a closed, insular club of academics, engineers, and government bureaucrats. A 1982 Massachusetts Institute of Technology (MIT) handbook for students warned them that “it is considered illegal to use the ARPAnet for anything which is not in direct support of government business,” and that sending private messages “can offend many people, and it is possible to get MIT in serious trouble with the government agencies which manage the ARPAnet.”
The network only became socially and economically valuable once government got out of the way. Thanks to a series of wise policy decisions in the 1990s, policy-makers essentially firewalled off digital technologies from the old Analog Age planning mindset and corresponding set of agencies and regulations. That, more than anything else, gave entrepreneurs, workers, and investors the incentive to go forth and revolutionize the modern economy.
The revisionists instead prefer to believe that someone high up in government was carefully guiding this decentralized innovation. In the new telling of this story, deregulation had almost nothing to do with it. King also downplays the role venture capitalists played in fueling America’s remarkable digital-technology triumphs, instead insisting that federal spending programs such as the Small Business Innovation & Research (SBIR) program “filled critical funding gaps for early-stage tech firms, investing where even the boldest venture capitalists would not.”
But nothing could be further from the truth.
Joel Mokyr reviews Brad DeLong’s new book, Slouching Towards Utopia: An Economic History of the Twentieth Century. (HT David Henderson) A slice from Mokyr’s review:
The concept of utopia is a major focus of the book. Somehow, DeLong notes with sadness in his concluding chapter, utopia has eluded us despite the huge increase in material resources; humanity had an opportunity to bring it about and failed. Yet the concept seems less than fully developed. The complex and volatile relationship between the West and the Soviet world in the Khrushchev era is summarized in a typical two-line paragraph: “And so, the world entered a stable, well-shy-of-utopia equilibrium, so you had to squint hard to see it” (p. 331). Clever, but not all that enlightening. The triumph of the West at the end of the cold war, says DeLong, may have proven that the West’s economic system was “better or at least less bad” than communism, but he then adds a warning: “be not proud” —the Western system was not so much “more utopian than less dystopian” (p. 337). Few have ever believed that the economic systems that emerged in the post-1945 mixed free market economies had serious pretension to provide a utopia; but they did provide a reasonable standard of living, access to education, and economic security to a large and growing segment of the population, and in the most successful cases (sadly not including the United States) they all but eliminated poverty. Perhaps the greatest transformation was evident in the (approximate) doubling of life expectancy across much of the world and the spectacular decline in infant and child mortality, which the book barely mentions. That may not have been utopia, but it was pretty good.
The first looming budget buster is the maintenance of discretionary spending at the exorbitant levels we saw during the pandemic, rather than a return to much lower—as in 20 percent lower—pre-pandemic spending. It might make sense during emergencies for Congress to increase spending. However, after the emergency passes, temporary programs—or temporary expansions of previously existing programs—should be allowed to expire and spending should fall back to where it was. Unfortunately, that’s not what Democrats want, and when it comes to spending more taxpayer money, they always find Republicans willing to join in.
Arnold Kling reflects on some of the work of the late Jeffrey Friedman.
The easing appears to be substantial given the heavy-handedness of zero-Covid over the past three years. Authorities will no longer be able to cast whole city blocks into lockdown limbo at the first hint of a positive Covid test in the neighborhood, and Chinese citizens finally are free of expensive and intrusive frequent testing as they go about their daily lives or travel domestically.
Yet the new rules merely create a Covid regime equivalent to the regulations that Western countries largely abandoned a year ago. Those who test positive may still be required to self-isolate at home—an improvement on the hospital quarantines they faced—and international travelers remain subject to quarantine requirements when they enter China. Many countries have long since abandoned the rules Beijing now is implementing because even the looser regulations proved economically and socially unworkable.
Meanwhile, China is left with the mechanisms of political and social control the Communist Party developed during the pandemic, such as the use of smartphone apps to monitor and regulate every citizen’s movement. Don’t imagine for a minute the Communist Party will give up those surveillance tools now that Beijing’s propagandists have declared the pandemic emergency over.
