Is the Pursuit of Industrial Policy Socialism? by Richard Duncan

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Globalist Bookshelf > Global Economy Is the Pursuit of Industrial Policy Socialism?
By Richard Duncan \| Thursday, February 11, 2010

The U.S. economy needs a $3 trillion investment in high-tech industries to restore its long-term viability, argues Richard Duncan. In this excerpt from "The Corruption of Capitalism," he addresses some of the most common objections to such a large-scale government intervention in the U.S. economy.

ountless objections will be raised to the implementation of an industrial policy in the United States. But there are powerful answers. Here are a few to be considered:

Objection: The U.S. government always makes a mess of things, and any money to stimulate U.S. manufacturing would just be wasted. Business should be left to the private sector.

Finance is a sunset industry. It would be better to sacrifice the financial industry than to abandon the economic restructuring plan.

My response: It is certainly very regrettable that government policy mistakes led to the debilitation of the U.S. economy and the New Depression. At this point, however, only the government is large (and creditworthy) enough to carry out investments on the scale needed to restructure the economy.

If the U.S. government does not act, the money will really end up being squandered — on wasteful government life-support programs.

Objection: An industrial policy would transform the United States into a socialist country.

My response: The United States already has a managed economy — but one which is mismanaged. To be sure, it is not managed equitably enough to be termed socialist. And it is not managed efficiently enough to avoid severe economic decline — unless changes are made.

Any attempt to go cold-turkey and return to pre-1930 capitalism would result in economic collapse as soon as U.S. government life support was withdrawn.

The only viable option left is much more intelligent economic management. Only after the country reestablishes a viable, self-sustaining economic structure will the United States have a hope of returning to a free-market economy functioning within an economically orthodox framework. But that is certainly not the economic system the country has today.

Objection: A $3 trillion investment program could not be financed.

My response: It could easily be financed.

The U.S. economy is not managed equitably enough to be termed socialist — and it is not currently managed efficiently enough to avoid severe economic decline unless changes are made.
Adding $3 trillion to the $10 trillion that the U.S. government is likely to have to borrow to fund its deficits over the next ten years would leave the ratio of government debt-to-GDP at less than 100%. Japan’s ratio of government debt-to-GDP will hit 225% in 2010.

Moreover, after the U.S. government’s $1 trillion investment in biotechnology and genetic engineering yields a cure for cancer, it will not take long to pay off the entire government debt. The only real threat that could make an investment program on this scale unaffordable would be a derivatives-induced meltdown of the financial sector that could cost the government trillions or tens of trillions of dollars to clean up.

Should that occur, it would be better to sacrifice the financial industry than to abandon the economic restructuring plan. Finance is a sunset industry.

Objection: $3 trillion would not be enough.

My response: A trillion dollars is an enormous amount of money, even in today’s world. Three trillion would produce miracles. However, if that sum failed to make the U.S. economy self-sustaining, double it: $6 trillion certainly would. There is every reason to believe that even $6 trillion could be easily financed.

Objection: Other countries would oppose a large-scale investment program by the U.S. government.

My response: That is very likely. Nevertheless, the world is dependent on exporting to the United States. The rest of the world will benefit from a healthy American economy. There will be no winners if the U.S. economy goes into terminal decline.

Only the government is creditworthy enough to carry out investments on the scale needed to restructure the economy.

Objection: Government ownership of such important industries would make government too powerful and would pose a threat to democracy.

My response: True. The investments in those industries would have to be managed as national trusts with very carefully thought out management structures involving checks and balances to prevent the abuse of power. This is a concern not to be dismissed lightly.

This is Part III of a three-part series. You can read Part I here and Part II here.

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Thomas G. Donlan , Washington DC , United States
(Friday, February 12, 2010, 5:33:11 PM ):

Mr. Duncan expects the objection that the government will make a mess of his investment program, but he doesn't answer it. He just says only the government can do it. The real problem is that nobody, government or private-sector, can manage a $3 trillion investment in anything, certainly not in speculative technologies. Throwing $1 trillion at nanotech, for example, will build a lot of laboratories, but it will not accomplish much.

He does not know who will use the money, or for what. Early-stage technologists need very little cash--they need scientists and engineers with ideas and freedom. Jack Kilby invented the integrated circuit in his spare time! Samuel Langley had a government grant to build an airplane; the Wright brothers were bicycle mechanics who wanted to fly.

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