In the great circus of politics, where elephants and donkeys perform under the big top, there is one act that never fails to draw a crowd: the venerable routine of “job creation.” Putting people back to work, especially those without degrees and in manufacturing, is the focus. Unfortunately, when you look behind the smoke, mirrors and rabbits hiding in hats, you will see that promises to rebuild America through industrial policy are simply old corporate welfare.
Industrial policy has made a surprising comeback. On his behalf, President Joe Biden’s administration and Congress have authorized between 1.2 and 2.1 dollars trillion in national subsidies for preferred manufacturing industries in areas such as clean energy, advanced manufacturing, construction, transportation and broadband. The ringmaster and his assistants assure the crowd that they will provide tens of thousands of new, high-paying jobs for workers with only a high school diploma. Meanwhile, on the right, industrial policy is being discussed as a way to increase manufacturing employment for the men left in the Rust Belt.
The argument for creating jobs to shower businesses with billions more in subsidies may surprise those of you who are aware of America’s remarkably low unemployment rate. Indeed, given that a handful of people will always be torn between jobs, a rate of 3.9% signals that very few of those who want a job fail to find it.
What, however, animates these politicians is the exodus from the workforce of mostly poorly educated men. The reasons for this workforce retreat are complex and go beyond the usual scapegoats such as trade and market forces. But I’ll save that topic for another column.
Let’s focus instead on the reality that industrial policy subsidies and tax breaks will flow to companies, often large and wealthy, for projects they probably would have undertaken anyway. This means they probably won’t create any new jobs. Even if these subsidies were to create a manufacturing boom, they probably wouldn’t lead to a jobs boom because most manufacturing output today is produced by robots.
And even if the subsidies benefit workers indirectly, recipients will largely be college-educated and from higher-income groups rather than those working on assembly lines. The golden era of widespread good manufacturing jobs that so many politicians yearn for is over. He’s been gone for 70 years.
Thus, industrial policy will not create jobs for poorly educated workers, but will increase cronyism. Chris Edwards of the Cato Institute notes that Biden’s industrial policy is best described as a corporate welfare bonanza. The Inflation Reduction Act, he writes, “distributed $868 billion in energy subsidies, most of them to large corporations, including automakers, utilities, manufacturers and hydrogen producers. Adam Michel believes Biden’s energy tax subsidies could top $1.8 trillion.”
The CHIPs and Science Act of 2022 awarded $54 billion in subsidies to the who’s who of Silicon Valley’s corporate and elite. Ditto with the Infrastructure Investment and Jobs Act of 2021, which subsidized railroads, electric utilities, broadband companies, the electric vehicle industry and others to the tune of $548 billion.
Unfortunately, when the government is in the business of doling out favors, companies put less effort into producing and more into seeking those favors. The result is “unproductive entrepreneurship,” in which innovators use their skills to gain government privileges instead of bringing new, better, and cheaper goods and services to market.
Finally, contrary to the Biden administration’s resounding anti-big business rhetoric, it has given a large number of narrow corporate tax breaks to large companies. Indeed, Edwards notes that since he has been in office, “President Biden has increased average annual corporate tax spending by 92%, from $109 billion to $209 billion.” He notes that tax code spending “increased from a projected $0.3 billion per year under Trump to $29 billion per year under Biden.”
Despite grand promises to revitalize the American workforce and bring prosperity to forgotten corners of the country, the reality is that industrial policy is typically a conduit that delivers corporate welfare, benefiting the already powerful and wealthy as it discourages genuine innovation and market-driven economic opportunities. .
Looking behind the scenes of this circus spectacle, it becomes clearer that sustainable employment and economic prosperity will not be generated by subsidies but by the unleashing of market forces, which will promote entrepreneurship and innovation. Only by stepping away from the spectacle can we hope to address the underlying challenges of the American workforce and pave the way for a more prosperous and inclusive future.
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