There are many, many things wrong with industrial policy, from waste to capital misallocation to the opportunity it gives the political and bureaucratic class to use taxpayer money to pursue agendas unrelated to the policy’s supposed purpose.
And then there’s incompetence, another all-too-frequent problem.
The Financial Times:
Some 40 per cent of the biggest US manufacturing investments announced in the first year of Joe Biden’s flagship industrial and climate policies have been delayed or paused, according to a Financial Times investigation.
The US president’s Inflation Reduction Act and Chips and Science Act offered more than $400bn in tax credits, loans and grants to spark development of a US cleantech and semiconductor supply chain.
However, of the projects worth more than $100mn, a total of $84bn have been delayed for between two months and several years, or paused indefinitely, the FT found.
The reporters list some of the larger projects that are on hold, which include “Enel’s $1bn solar panel factory in Oklahoma, LG Energy Solution’s $2.3bn battery storage facility in Arizona and Albemarle’s $1.3bn lithium refinery in South Carolina.”
Taiwan Semiconductor Manufacturing Company has delayed the start of production at its second fab — part of its $40 billion project — by two years. That’s particularly unfortunate. As Adam Smith accepted, strategic and defense considerations can provide a good reason to support certain industries even if the results are suboptimal economically. The Biden administration has shown welcome signs of realizing that China has moved beyond traditional Great Power rival (which would be something to watch, but manageable) to opponent, and an extremely dangerous one at that. Under the circumstances, a substantial TSMC presence in this country is an obvious insurance policy against a blockade of Taiwan or worse.
According to the FT, other projects, it appears, are just going nowhere (so far), but under the radar screen.
Some of them are running into difficulty because of the growing problems surrounding the transition to EVs, a top-down, technologically and strategically counterproductive and almost entirely pointless folly of historic proportions that may end up handing a critical part of the Western economy to China. But industrial policy is what it is.
Meanwhile the FT reports that Alex Jacquez, special assistant to the president for economic development and industrial strategy — a title that ought to chill the blood of the economically literate — is insisting that the Biden administration has had “unmitigated new success” in boosting construction and manufacturing.
Jacquez is certainly correct that there has been a massive increase in investment in these areas, but, given the way that so much of it has been supported by subsidies of one sort or another, the investment was the easy part (except for the taxpayer). The bigger question is whether the (subsidized) deployment of all that capital will yield enough of a return to ensure that the businesses it has funded will be able to establish themselves as viable operations without continued state support, and to do so for a sustained period. It’s too early to tell, but I have my suspicions. A related question is whether the lure of subsidies has dragged companies away from investment projects that had to look feasible in their own right — without any government help. That’s a tougher test, but it tends to yield more durable results. Again, we’ll see.
(More on current industrial policy fiascos here.)