Using Industrial Policy for Productive Transformation

New York, NY — The US faces major societal challenges—not least climate change—that cannot be solved without major transformation of its production systems. Recent industrial policies—the Inflation Reduction Act, the CHIPS and Science Act, and the Infrastructure Investment and Jobs Act—represent the most prominent initial efforts by US policymakers to reinvest in domestic manufacturing, infrastructure, and energy. A true green transformation will require further investments and complementary policies, but some critics claim that the US government is already trying to do too much and should dial back its ambition and narrow its focus.

A new Roosevelt Institute brief published today, “Using Industrial Policy for Productive Transformation: Three Lessons from Development Economics for US Industrial Strategy,” argues that such critics could learn from successful economic transformations in history. Authored by Isabel Estevez, deputy director of Industrial Policy and Trade at the Roosevelt Institute, the brief uses lessons from development economics to illustrate how policymakers can avoid common policy pitfalls:

• First, efforts at economic transformation have historically been curtailed by grave underestimation of the necessary scale and scope of the policy interventions, and US policymakers risk falling prey to this pitfall if they give in to pressures to deploy industrial policy narrowly, relying on a limited set of policy tools;
• Second, great economic transformations have often sidelined or deferred (sometimes indefinitely) human well-being objectives in favor of other strategic priorities. Policymakers should design industrial policy with a more humanist sensibility; and
• Third, failure to effectively manage class politics and secure buy-in from a broad range of stakeholders can both undermine the viability of industrial policy and hamper its ability to properly assess public interest challenges to deliver on public interest objectives. Conversely, effective democratic engagement can help policymakers better diagnose problems and build buy-in and momentum for transformative change.

Insight from the Industrial Policy Team at the Roosevelt Institute:

“We are at a pivotal moment in US history. The climate crisis will necessitate a sustained industrial transformation,” said Estevez. “Luckily, we don’t have to reinvent a body of knowledge to inform that enterprise: Development economics scholarship has a long tradition and many lessons for this moment.”

“Alexander Hamilton, Raul Prebisch, Manhub ul Haq: Two out of three are not household names in the US, but they should be,” said Todd Tucker, director of Industrial Policy and Trade at the Roosevelt Institute. “As Estevez compellingly argues, the experiences and insights of these ‘developmentalist’ political economists have important lessons for the present, about how industrial policy can go wrong or go right.”