There is a great irony that while the US essentially invented modern industry policy, many there still view it as a dangerous subject. Under Alexander Hamilton, founder of America’s first national bank, politicians directed US industrialisation. Presidents including Kennedy also supported a state role in directing capital flows. But since Reagan, trickle-down and laissez-faire have ruled, despite evidence markets do not allocate capital to the most productive places. There is a sense that monetary policy can no longer support US growth, and that the country may be heading for a recession. The private sector is uninterested in low return public infrastructure projects, or investment in education and training needed to bolster underlying growth in the real economy. This has made government-led industrial policy a major topic on the Democratic presidential campaign trail, with candidates such as Senator Elizabeth Warren advocating for some modern industrial planning. Ms Warren points out that despite distrust around state planning, which is viewed by many Americans as dangerously “socialist”, the US government already does make economic choices. For example, it has chosen to support a debt-driven, two-speed economy rather than one that prioritises income and industry. Ms Warren’s response would be to create a new “Department of Economic Development,” to increase federal funding for core research. It would ensure companies that benefit would manufacture in the US, especially if they plan to sell to government. Taxpayers would receive a cut of corporate profits from state funding. The workforce would also be better trained as part of the effort to build a worker-led economy, not a consumer-led one. Other liberals such as Joe Biden and Kirsten Gillibrand are also considering adopting aspects for their own platforms. But interest stretches beyond the Democratic party to some members of the GOP. In May, Senator Marco Rubio, chair of the Senate small business committee, issued a report on the challenges to capital investment in the US. The report acknowledged that capital markets were no longer helping non-financial business and that the policy of putting shareholders’ priorities above all else should stop. It suggested that public policy could play a role in directing capital to more productive places — Main Street, not Wall Street. None of this implies an easy bipartisan solution. Republicans and Democrats alike agree that the country desperately needs better infrastructure, but cannot agree on how to pay for it. Still, the fact that some important conservatives like Mr Rubio are now willing to concede that the market system simply is not serving American business is a real sea change. The question now is how to ensure that a strategy to boost jobs at home does not become a zero-sum effort that would further alienate allies abroad, or trigger more nationalism and protectionism. Ms Warren’s own plan for “economic patriotism” includes some misguided measures, such as allowing for currency manipulation. As the events of the past few weeks have shown, both trade and currency wars are a losing proposition for all of those involved in them. Simply copying parts of President Trump’s “America first” rhetoric is not a winning strategy for Democrats, either politically or economically. Their presidential candidates in particular need to articulate a plan that can connect the dots between domestic job creation, trade and more constructive foreign policy. The future of the US, and the world economy, depends on it.
This is the editorial in the Financial Times today. Truly things are changing in the world.