Many, many, many moons ago, there was a saying, “Never trust anyone over thirty.” Well, Matt Yglesias, along with older older economists who should know better, are turning that statement on its head. It doesn’t surprise me that Yglesias would write something like this (boldface mine):
I don’t share their enthusiasm. The extra effort that went into Sperling’s speech [arguing for industrial policy] raises the troubling possibility that these ideas will actually guide policy in a second term rather than simply serve as props in a re-election campaign. It is sensible for public policy to pay attention to the creation of great firms, to strength in specific sectors, and to the quality of the jobs generated by different economic models. But it should be obvious that the path forward for America is to focus on our strengths in information technology and media, and not compete with the Chinese for manufacturing supremacy.
This inanity is what I’ve come to expect from Yglesias. But I am shocked that smart professional economists like Mark Thoma, are either coming around slowly to the notion of U.S. industrial policy, or as Dave Johnson details (and read the whole post too) still don’t think manufacturing and production should be done in the U.S.
Ultimately, this stems from an absence of those stupid natural history facts–we have people influencing policy (or at least, who would like to do so) who have never been involved with manufacturing and production. This is why countries can’t solely be run by people who, straight from college, enter ‘thought industries’ (an oxymoronic term if there were ever one).
To return to Yglesias, let me give an example of why innovation and manufacturing can’t be decoupled, and then I’ll embiggen it.
At Major Sequencing Center, we view sequencing genomes as a process: DNA comes in and sequencing goes out. We actually do a lot of innovation, and many of our funders expect us to do this (note: this isn’t unique to my specific Major Sequencing Center). But we don’t invent sequencing technology: Illumina does that. Life Technologies does that. 454 does that. And so on. So what do we add? All the stuff surrounding the sequencing. For example, the supplies and disposable equipment for one technology used to come in a huge box, and if you laid out all of the supplies, they covered twelve square feet of space. We helped reduce that to two square feet. Not only is this cheaper (less stuff), but it dramatically reduces the opportunity for errors. And if you screw up a sequencing run, it’s really expensive. It also required less human effort per sequencing run, lowering costs. Another example (cuz it’s kinda fun): strip tubes. Basically, these are eight small tubes joined together in a line (there are reasons why this setup matters not worth getting into). It dawned on someone that occasionally a tube would be flipped. At best, this meant the run would fail (expensive!). At worst, it means your results are flipped around–sample #1 is where you thought sample #8 was and so on. If you put a little nub on one end of the tube, you’re a lot less likely to flip the strip tube.
These are innovations in a production/manufacturing process that actually make it work better (and I’ve left out things like incorporating robotics into the process and so on). Yet, according to the false dichotomy, none of this is ‘innovation’, even though it can lead to technological improvements, such as lowering costs to the point where the sequencing technology can be more widely used.
Now imagine we were making cars. According to the false dichotomy, all of those innovations–and the jobs they could create–would be occurring outside of the U.S. This would be a bad thing. And it’s not just the Mad Biologist who thinks this. Try Andy Grove, CEO of Intel, who might know a thing or two about making stuff (boldface mine):
Friedman is wrong. Startups are a wonderful thing, but they cannot by themselves increase tech employment. Equally important is what comes after that mythical moment of creation in the garage, as technology goes from prototype to mass production. This is the phase where companies scale up. They work out design details, figure out how to make things affordably, build factories, and hire people by the thousands. Scaling is hard work but necessary to make innovation matter.
The scaling process is no longer happening in the U.S. And as long as that’s the case, plowing capital into young companies that build their factories elsewhere will continue to yield a bad return in terms of American jobs…
A new industry needs an effective ecosystem in which technology knowhow accumulates, experience builds on experience, and close relationships develop between supplier and customer. The U.S. lost its lead in batteries 30 years ago when it stopped making consumer electronics devices. Whoever made batteries then gained the exposure and relationships needed to learn to supply batteries for the more demanding laptop PC market, and after that, for the even more demanding automobile market. U.S. companies did not participate in the first phase and consequently were not in the running for all that followed. I doubt they will ever catch up…
Here’s the key point by Gross:
I disagree. Not only did we lose an untold number of jobs, we broke the chain of experience that is so important in technological evolution. As happened with batteries, abandoning today’s “commodity” manufacturing can lock you out of tomorrow’s emerging industry.
I hate extrapolating to entire disciplines, especially when an egregious example comes from someone not in that field. But the reluctance of too many economists to embrace industrial policy really seems to be a case where superficial application of simplistic theory with complete disregard for actual reality–those stupid fucking natural history facts–has really hurt this country.