Critics of free market economic policy often point to declines in manufacturing employment or, worse, to the “hollowing-out” of the American middle class as evidence that Americans have been hurt by the policies. They advocate for America to rebuild a broad-based economy by means of industrial policy. The merits of this argument formed the subject of this month’s Law and Liberty forum. Dr Samuel Gregg of the Acton Institute provided the lead essay, with reactions from Aaron Renn, Patrick T. Brown, and me. Dr. Gregg capped the discussion off with a reaction piece.
To get the real flavor of the discussion and the arguments, interested parties should read all the essays, but I shall give a quick summary here. Dr. Gregg’s lead essay suggested that industrial policy has a poor track record; instead, policy aimed at rebuilding a broad-based economy should focus on enabling entrepreneurship and competition, although this would mean some hard choices might need to be made by some people. Renn responded that entrepreneurship and competition were mere buzzwords, that deregulation had caused a host of problems, and that:
Government action across a range of dimensions is needed to address the legitimate underlying concerns that cause people to demand solutions like “broad-based” economic growth in the first place.
Brown contended that the free market approach of creative destruction destroys too much and invests too little in creativity. Warning against the perils of inaction, he stated:
My preferred approach would be to invest in basic and advanced R&D, as in the bill formerly known as the Endless Frontier Act, while at the same time exploring what effective place-based policy might look like in disinvested regions.
I had not seen the other two essays, only Dr. Gregg’s lead essay, and focused my arguments on the simple impossibility of building a broad-based economy under the regulatory regime we have in place. Regulators, I argued, have been hostile to affordable energy, available finance, and easy employment, raising ever-increasing barriers to business foundation and growth. Furthermore, the ratchet turns only one way. My conclusion was:
Achieving any of the results that Dr. Gregg would like to see achieved through entrepreneurship and competition will require nothing less than a wholesale program aimed at eliminating the administrative state as it exists today.
Dr. Gregg responded robustly to the arguments advanced by Renn and Brown, and I will let those debates speak for themselves. I could say a log about those essays, but one point I will make is that where Renn rails against bailouts of financial institutions, he neglects that the free market answer would have been to let those companies fail, allowing healthier, smaller companies that had not made the mistakes of the bigger companies to replace the failed institutions. Instead, we got TARP and the Dodd-Frank Act, which allowed those failed institutions to survive and eat up their worthier competitors.
I am pleased that Dr. Gregg responded positively to my essay, going so far as to state:
[I]f entrepreneurship and competition are to play the role that I think they should in America’s economy, the prerequisite is, as Murray puts it, “nothing less than a wholesale program aimed at eliminating the administrative state as it exists today.”
Therein lies an economic project worthy of conservatives, and one with immense potential to bolster America’s common good. Yes, the modern regulatory state has been around a long time and it seems only to grow. It is also bolstered by the many Americans—government employees, crony businesses, lobbyists, legislators etc.—whose livelihoods and power depend significantly upon the administrative state remaining firmly in place.
But the future of conservative economic policy surely cannot lie in effectively giving aid and comfort to such people and their private and public enablers—let alone simply accepting the status quo. Nor can it be with those conservatives who insist that, if only they were in charge, the administrative state could be redeployed to good ends, or that their particular industrial policies would somehow magically overcome all the well-documented problems that manifest themselves wherever industrial policy has been tried, whether in China, Europe, or Japan.
Of course, taking down the regulatory state should not be the entirety of a renewed conservative economic program. Restoring entrepreneurship and competition to their proper place in America also involves: 1) putting the Federal government firmly back within its constitutionally-defined limits; 2) the restoration of sound monetary policy; 3) fixing our bloated and chaotic tax code; 4) reforming our dysfunctional immigration laws; 5) stronger protection of property rights; and, above all, 6) strengthening the rule of law in a country where it is visibly weakening.
Such measures are certainly advisable, and we at CEI are dedicated to several of them in addition to our core work on regulation. No-one, contra Renn, suggests that such a program is easy, nor, contra Brown, does it represent inaction. It will be hard work and will need to overcome entrenched and powerful interests—but it is the best hope for a renewed birth of freedom on this Earth.