Both parties agree on the end of Reaganomics — and little else
In the U.S. Senate, there was a recent sight to behold: bipartisanship in service of the national economic interest. All but 11 Republicans in the upper house joined Democrats in advancing the Endless Frontiers Act, which would significantly increase federal spending on R&D. But this isn’t the first time that Republicans have seemed to buck conservative orthodoxy on industrial policy.
In a representative example, Sen. Marco Rubio (R-Fla.) raised eyebrows two years ago with policy reports that quoted liberally from left-leaning economists in calling for the federal government to actively support American businesses. Rubio even went so far as to question shareholder primacy in corporate governance. Perhaps Republicans are preparing to fully embrace industrial policy — if they do, it will confirm the end of the era in economic policymaking that began with the Reagan Revolution in 1981.
But this new paradigm will not bring with it partisan consensus on the economy. Instead, industrial policy will be a new landscape for an old battle: What is economic policy for? As in the past, Republicans will try to use it to protect the stature of established firms and industries. Democrats will look to protect the well-being of workers, while creating the conditions for the firms and industries of the future. From economic theory up to overall vision, competing versions of industrial policy will manifest this longstanding partisan conflict.
To start with theory: Even while cozying up to government intervention, Republicans will continue their unfortunate commitment to supply-side economics. Fundamentally, supply-siders believe that governments should create incentives for firms to invest rather than doing the job itself. That’s why Rubio’s policy recommendations explicitly reject large-scale government investment. Today’s Republican industrial policy would instead rely on tax incentives, deregulation and protectionism at the expense of workers and the economy’s overall technical capacity. The chief beneficiaries of these policies would be America’s established firms and industries.
By contrast, progressive, demand-side industrial policy would cultivate markets for crucial emerging technologies through government-directed investment in firms and workers. As Hassan Khan and Alex Williams illustrated in a recent analysis of the U.S. semiconductor shortage, government purchases of strategic technologies reduce business risk for firms building new production capacity; and labor market policies ensure a healthy pool of both workers and consumers. The progressive model could both enable firm competitiveness and bolster crucial supply chains for strategic technologies.
But it’s not only in theory and practice that progressive industrial policy seeks to meet the future while that of conservatives remain fixated on an idealized industrial past: It’s in their stated goals. Rubio’s policy report advocates industrial policy primarily to promote national champion companies in a return to a mythologized golden age, with classic, vertically-integrated, “patriotic” firms from the 1950s like DuPont and General Motors as his models.
By placing patriotism ahead of shareholder value, these firms can serve as a bulwark for American interests in great power competition. Imbued by Rubio with paternalistic virtue, such firms can be trusted to keep the interests of their American workers close at heart, while the reports ignore the strength of the union movement actually responsible for the good working conditions of the time. It’s a vision of America’s return to industrial glory that does not change the beneficiaries of this fabled past.
This a far cry from the green-powered, worker-centric vision of America’s economic future put forward by progressive leaders. From President Biden to Rep. Alexandria Ocasio-Cortez (D-N.Y.), Democratic industrial policy is focused on infrastructure support and direct investments in clean energy and other technologies that will underly new firms and industries in the coming decades. Their goal isn’t only to reduce America’s carbon emissions — it is to fuel growth in entirely new firms and industries that are hungry for investment and would benefit greatly from cheaper, more dependable energy sources. An enhanced welfare state and active labor market policy would support a healthy middle class of productive workers and consumers. Nostalgia for a certain kind of firm is not part of the picture.
Shifts in economic paradigms bring new forms of consensus, but do not result in bipartisanship. The post-FDR GOP resisted Democrats over labor law despite accepting elements of the New Deal. Partisanship was famously acrimonious under Presidents Clinton and Obama, despite their acceptance of their Republican predecessors’ pro-business perspective. So, while industrial policy may signify the end of the Reagan era, it does not presage partisan convergence. Debates in the near future will magnify some of our most foundational political conflicts, as partisan divides intensify over who industrial policy will serve, and why.
Nils Gilman is vice president of Programs at the Berggruen Institute.