China doubled down on industrial policy and advanced manufacturing in its latest Third Plenum. As US-China competition heats up, both countries are drawing policy inspiration from each other.
China looks more equipped with industrial policy because of -
1. China has Policy direction certainty - While US political system is deeply paralyzed. From Congressional Republicans blocking everything, to Supreme Court, to Trump's threat etc. The policy making in America is difficult & creating great uncertainty.
2. Technocracy in China - US politicians are mostly hacks and lobbyists with little enthusiasm of policy making. They pass policies dictated by their donors. And donors, the wall street conglomerates mostly think about their own corporate gains rather than long term picture from national perspective. The motivation of US industrial policy is driven by threat to profits of US conglomerates, not really with any national strategic viewpoint.
3. China has SOEs in its toolkit which can help regulate private competition, economic demand, adoption of technology or discarding of old technology much faster, working in conjunction with private players for implementation of national policy. The managements of SOEs (as you also mentioned in earlier article) is professional and competitive, making them compatible with market economy. US doesn't have any analogous policy tool like this.
James Galbraith on US industrial policy is also a good read.
While China can mobilize capital quickly in a particular direction, US has advantage of deep financial markets that can finance enormous capital (this is prominent in IT sector). While both US and China pour subsidies into their strategic sector, US financial markets acts as a steroid which motivates private players in taking bigger risks. If private players innovate and succeed, the rewards are huge. And if the private players fail, that's loses which US financial system tolerates well and continue to roll as new players try new ideas.
Hi, great article. But I think some of your claims may suffer from “false equivalence”. I really think China doesn’t believe it is in competition with the US when it comes to economic policy. Economists long argued (rightly in my view) that nations do not compete. We benefit when our “rivals” do better. China certainly seeks win-win cooperation through trade and exchange. It’s the US that views the world in zero-sum terms.
So please don’t “legitimise” US perceptions that it is threatened by China’s success. It is not. And let’s resist the current claims (not made by you) that China owes its success to US benevolence. The US benefited economically from China’s membership of the WTO. It was foolish US neglect of American workers that has given rise to labour’s falling share of aggregate income.
China looks more equipped with industrial policy because of -
1. China has Policy direction certainty - While US political system is deeply paralyzed. From Congressional Republicans blocking everything, to Supreme Court, to Trump's threat etc. The policy making in America is difficult & creating great uncertainty.
2. Technocracy in China - US politicians are mostly hacks and lobbyists with little enthusiasm of policy making. They pass policies dictated by their donors. And donors, the wall street conglomerates mostly think about their own corporate gains rather than long term picture from national perspective. The motivation of US industrial policy is driven by threat to profits of US conglomerates, not really with any national strategic viewpoint.
3. China has SOEs in its toolkit which can help regulate private competition, economic demand, adoption of technology or discarding of old technology much faster, working in conjunction with private players for implementation of national policy. The managements of SOEs (as you also mentioned in earlier article) is professional and competitive, making them compatible with market economy. US doesn't have any analogous policy tool like this.
James Galbraith on US industrial policy is also a good read.
https://www.ineteconomics.org/perspectives/blog/industrial-policy-is-a-good-idea-but-so-far-we-dont-have-one
While China can mobilize capital quickly in a particular direction, US has advantage of deep financial markets that can finance enormous capital (this is prominent in IT sector). While both US and China pour subsidies into their strategic sector, US financial markets acts as a steroid which motivates private players in taking bigger risks. If private players innovate and succeed, the rewards are huge. And if the private players fail, that's loses which US financial system tolerates well and continue to roll as new players try new ideas.
perfect analysis. China has an advantage basically everywhere except the depth of their capital markets.
Hi, great article. But I think some of your claims may suffer from “false equivalence”. I really think China doesn’t believe it is in competition with the US when it comes to economic policy. Economists long argued (rightly in my view) that nations do not compete. We benefit when our “rivals” do better. China certainly seeks win-win cooperation through trade and exchange. It’s the US that views the world in zero-sum terms.
So please don’t “legitimise” US perceptions that it is threatened by China’s success. It is not. And let’s resist the current claims (not made by you) that China owes its success to US benevolence. The US benefited economically from China’s membership of the WTO. It was foolish US neglect of American workers that has given rise to labour’s falling share of aggregate income.
China is doing industrial policy better because it still has an industry.
In terms of hard power the USA has already lost. The USA also has no navy building capacity.
Remember, we offshored our industry to China for profit, that was the idea behind globalization.