Not all industrial policy is created equal.
Responding to the poly-crisis will require coherent and coordinated planning. Whether or not we're successful will depend partly on our assumptions about how the economy works.
For a period of time, the term industrial policy fell out of fashion, in favour of ‘laissez-faire’ approaches, such as international trade treaties, lower corporate taxes, and deregulation. To be clear, these often operated as industrial policy1 - it was just hidden behind a veneer of letting the ‘free market’ do its thing. Cover was provided by economists who ignored foundationally shaky assumptions embedded in models, who didn’t consider the value provided by healthy watersheds and unpaid work, who glossed over the way that power functions in human societies. For example.
Governments also continued to actively intervene in the economy with tax breaks for specific industries, bail-outs, procurement decisions, and so on … they just didn’t call it industrial policy. I’m less interested in that open hypocrisy than I am in the ways that supposedly horizontally neutral policies aren’t, because they don’t take into account different elements of how our economy and society function.
Governments can make supposedly horizontally neutral decisions, such as lowering corporate income taxes, that will have non-neutral impacts given the pre-existing landscape. We do not have perfect competition in any sector of the economy, but there are industries with larger barriers to entry than others, which allows those already operating within that sector to maintain elevated profit margins. Corporations (and their shareholders) in industries with higher profit margins benefit disproportionately from corporate tax cuts, while other industries (and people) are negatively impacted by the degrading of public infrastructure or loss of services that result from the loss to government revenues.
Privatizing crown corporations is another example - whichever firms (and their shareholders) that got to profit off of that decision are happy, but other industries (and people) that benefited from the lower cost public service are negatively affected. Think power companies, telecoms, insurance companies, public transportation - there are a number of ways that public services and infrastructure support private sector economic activity.
New Industrial Policy - The inclusive innovation economy
You’ll forgive me if I’m skeptical about this government’s rhetoric on inclusive economic growth. One of the areas of economic policy that I follow closely is Canada’s free trade negotiations, and the biggest change the Trudeau government made to the Harper government’s Trans-Pacific Partnership before they ratified it was to add “Comprehensive and Progressive” at the beginning of the name.
In other agreements Canada’s approach has been to make trade deals more ‘inclusive’ by adding chapters on gender, for example. These chapters make vague statements about ensuring women are able to share in economic prosperity, but undertake no analysis about the ways that the current free-trade model may be standing in the way of making sure that happens.
I wrote about how this played out in CUSMA negotiations here:
In terms of gender, far more useful would be a process that considers the ways that our economy, foreign investment, and international trade impact human rights and gender equality…
This government’s penchant for symbolically papering over neo-liberal economic policies with inclusive rhetoric is familiar to me.
But it’s not all bad. Navdeep Bains was the innovation minister for 5 years, leaving only when he decided not to run again in 2021. Word around Ottawa was that people in “Bains’ shop” were fans of Maria Mazzucato’s book, The Entrepreneurial State, which makes the case that early public sector investments created the foundation for our current high-tech sector.
My take on Mazzucato’s book is that it makes sense for governments to invest in mission-oriented public sector research - through the National Research Council and universities, for example. Definitely a rethink on rules governing data and intellectual property. What the federal government did was set up the Strategic Innovation Fund and 5 innovation superclusters to give more direct support to private industry to do ‘innovation’.
The biggest shift in actual industrial policy seems to have been extending direct support beyond our traditional auto and aerospace industry, and into information technology and clean tech. The design of the superclusters is also meant to foster innovative ecosystems in key sectors, and to be fair, it would be really hard to tell if this strategy has worked yet. And the federal government has been trying to sort out how to regulate data and IP, but it is complicated, and there are lots of very entrenched interests who are very good at lobbying.
I think this conversation on how to create coherent policy that encourages private sector innovation and creativity is important. But I also think it misses a much bigger barrier to inclusive growth.
Cakes are better than pies.
Armine Yalnizyan has a lovely video with the National Film Board of Canada, where she talks about the economy as a layer cake. It’s a riff on Hazel Henderson’s view of the economy - the first layer of the cake is the environment, then on top of that rests the unpaid reproductive work of households, and on top of that is public sector infrastructure and services. The private sector is the icing, resting on top of the previous three layers.
If we only focus on the top layer, and ignore the conditions of the three foundational layers, it’s counter-productive to a healthy economy and society. In the video, Armine says:
“An argument for free markets without robust public provisions is an argument for inequality. Free market fundamentalists are blind to the other layers that support them.”
I don’t think it’s just free market fundamentalists. I think lots of people and policy makers ignore, or take for granted, the other layers of the cake that support our economy.
If we think that markets usually work, and governments should just step in to address failures, we’ve accepted the free market fundamentalist view of the economy without realizing it. We have framed the question in a way that ignores the ways that private, public and unpaid sectors interact, and the possibilities for co-creating healthier economies. So none of the answers are going to give us what we want - inclusive societies with shared prosperity.
Mission oriented industrial strategy
Maria Mazzucato’s 2021 book “Mission Economy - A moonshot guide to changing capitalism”, focuses on how to co-ordinate public and private sectors toward a common mission. Seth Klein’s 2020 book, A Good War, lays out how Canada did just that during the second world war, and proposes we can do the same now to address climate change.
Whatever we call it, public policy will not create sustainable and shared prosperity unless we reject the narrow view of the economy that has dominated for the past 40 years.
Where the simplest definition of an industrial policy is a decision made by government that benefits some industrial sectors over others.