Arthur Herman, author of Freedom's Forge—a book that illustrates how American titans of industry worked in tandem with government to win World War II—explains what an industrial policy is, and makes a compelling case for it.
The phrase “industrial policy” conjures up images of Europe’s dirigiste failures, corruption in African and Latin American economies, and the disastrous 1984 presidential campaign of Walter Mondale. In board rooms and think tanks and even university class rooms across the country, the term generates an instinctive revulsion hardwired by decades of listening to laissez-faire and supply-side economic thinkers, from Milton Friedman and Martin Feldstein to George Gilder and Arthur Laffer. The phrase recalls humiliating policy failures from Solyndra and Evergreen Solar at one end to Soviet five-year plans at the other, more sinister end—not to mention the Great Leap Forward.
All this explains why industrial policy has been, by and large, a taboo subject among American politicians as well as economists. That is, until now. There’s been a recent shift in mood and attitude about the proper role of government in shaping America’s economic destiny. There’s a growing fear that limiting government’s role to merely umpiring market mechanisms is hurting both our economic future and our national security. There is a growing belief that policy options beyond market fundamentalism must exist, and that a failure to pursue these alternatives might put us on a different road to serfdom.