Industrial Policy

With this I hope to bridge the two crises in my mind that have the opportunity to provide the engine for economic growth and conflict resolution, the fusion of energy technology and Industrial policy.

Well, the Climate Change Summit in Copenhagen has come and gone and ideas were communicated, consensus gathered, differences captured and important issues unresolved. Given the current state of the global economy it is no surprise that a major agreement did not result as governments are coming to grips with the reality of their best intentions and its realistic limitations. But also I would argue because they have not independently come to the self interested conclusion that would add to economic, environmental and national security. How do we use this crisis of climate and energy to provide incentives for conservation and economic growth? Variations on this question have been of concern since industrialization especially as they relate to growth and yet we neglect how it is manifest today and how it can aid in resolving our current dilemma.

Robert Pollin in an interview on The Real News Network describes best our historic solution to issues of growth and security. "It's absolutely true that the industrial policy that's taken place within the military, for a century, really, has developed all the major technical innovations that we've experienced in the economy. And you can point to jet aviation—well, aviation in general. You can point to the computer and the Internet. Imagine our economy without jet aviation, without the computer, and without the Internet. All of these were developed within the framework of the military sector. And the way the military was able to do it was to nurture these, supporting research and development, yes, decisively, but also supporting a guaranteed market, what we would call government procurement, creating a large-scale market that allowed these innovations to nurture over time without having to face, you know, the cruel test of the market within a year or two. And, in fact, there's a very important book by Vernon Ruttan of the University of Minnesota, who poses the question: is war necessary for economic growth? And he's a completely mainstream economist. His answer was "yes". Now, it's not that war was necessary for economic growth; his argument was that the industrial policy is necessary for economic growth. And the only way we're getting industrial policy in this country is through the military. The implication is, if we could pursue a solid industrial policy through means other than the military, other than the Pentagon, we could see comparable kinds of benefits......So what we need to do is create a similar kind of industrial policy that does the same thing. And there are two key features, and this book by Professor Ruttan emphasizes both: yes, support research and development, but equally important is the notion of a guaranteed market, procurement, because without that, the research and development, they won't know where to sell it for a long time....I mean, if we think about what are the real long-term challenges we face, obviously creating a clean-energy economy, fighting climate change is the crucial long-term issue for the survival of the planet. What about, you know, other issues? Job creation? What about creating decent school systems and a health-care system? These things also need to be nurtured through the same kinds of industrial policy, and they create more jobs in the process. So the military model is useful for understanding how you build industrial policy and not just rely on the rhetoric of a free market, 'cause we never had a free market in creating these major technologies that are the cornerstone of our economy. The aviation industry, computer industry, Internet—none of them were built on the basis of a free market."

The sheer fact of this statement cannot be denied. Procuring arms is the only industrial policy in this country and why the F-22 was allowed to fail for so long and the F-34 is built in almost all 50 states. Why we are still spending money on a failed missile defense shield, land mines and generally a glut of arms. This federal industrial policy is also why defense spending accounts for fully 60% of the federal budget. And as Professor Pollin points out and I have argued here before the most important issue facing us today is providing for a new industrial policy with strategic emphasis on energy technology. The element of this equation that is missing and relates directly to climate policy can also be found within the military framework and relates specifically to aid. We have often been cited as providing military support to nations such as Israel and Egypt and more historically and with relevance Saddam Hussein and Iraq, the Shah and Iran. What is often lost in this benevolent aid is the return that we get when we outline as part of the agreement that this aid must come in the form of military equipment manufactured in the USA. Of the $2.4 billion in aid we provide Israel 75% comes in the form of military purchases from US manufacturers. Allowing for similar type aid agreements with developing countries in exchange for tighter environmental controls may be the missing element in a climate agreement. This energy security aid and assistance mechanism has the potential to solve the issue of compensation and transfers between developing and developed nations.

An industrial policy solution is primary and a far superior alternative to the cap and trade, derivative based and broken financial market mechanism solution currently on the table. Europe has tampered with this Congressionally ill fated idea, their experience will and should for good reason kill this policy proposal. Not to mention the result, or should I say fallout from our last financial system/public policy solution for growth. Energy security aid and procurement is the industrial policy solution to the most pressing international security dilemma of our time. We have exited the Cold War and entered into the Warm War only we have not adjusted industrial policy to suit.

If we can aid developing countries by providing necessary energy supply the cornerstone for growth and nurture our energy industrial base we can finally move forward and begin to secure our future security.

The cynical and health care debate weary both scoff at this recognition and the monumental task ahead. Not merely of transforming our economy, changing the concept of security in the age of terrorism add to that the likelihood that politicians, lobbyist and self interested corporations will allow this conversation to occur in the first place. But if you've ever played SimCity you know what I mean.