The new industrial policy

The integration of a peripheral country into the world economy means selective but intelligent protection of key industries.

The financial crisis of 2008, initially caused by the bursting of the speculative bubble of sub-prime mortgages in the United States, known as the Great Recession, produced a rupture in economic globalization driven by the financial capital of the capitalist center and imposed changes in economic policies based on budgetary austerity, positive interest rates, and the fall in the purchasing power of wages.

To contain the fall in production, the most serious since the 1930s, public spending was increased significantly to sustain global demand, negative real and nominal interest rates were imposed, and monetary liquidity was increased with the so-called “quantitative breaks”, as had never been done in the past in peacetime, and world trade was restricted with tariff and non-tariff protectionist policies.

The unexpected correlate is that the concept of industrial policy returned to the center of the economic stage, which had disappeared from the declarations of political leaders and had been transformed by the hegemony of orthodox economics into a blasphemy. The reason given was that the market was responsible for doing well what state policy did wrong.

But a double standard was used because, in order to “help” market action, liberalism had imposed policies that facilitated the destruction of industry. Thus, the conception that prevailed thanks to the action of the hegemonic media was that any deviation from economic neoliberalism was injudicious and that it was better to sink with globalization than to emerge with economic nationalism, a theory that currently has fewer and fewer followers.

Economic Nationalism

Economic nationalism is nothing new: Alexander Hamilton, George Washington’s first economy minister, was a protectionist. He based it on the French mercantilist tradition, expounded it, and applied it in such a way that he founded the industrial power of his country. He facilitated industrialization and financed it in part through the system of tariffs that allowed customs duties to be collected (in 1801 they provided the Treasury with more than $10 million at the time and it was the main cause of the war with Great Britain between 1812 and 1815).

Charles De Gaulle spoke of the planning of the industrial fabric as “an ardent necessity”. In his pamphlet “National Self-Reliance,” John Keynes explained in 1933 that “greater national self-sufficiency and greater economic protection could serve to improve the situation, which globalization has not permitted.” In Argentina, the industrial policy deployed by the Five-Year Plans promoted by Juan Domingo Perón and the policies to protect the national industry allowed it to develop. In 2023, the industrial sector and construction accounted for 21 percent of GDP. However, this was not always the case: after the 2001 crisis, after a quarter of a century of neoliberal economic policies, industry barely reached 10 percent of GDP.

Industrial policy

A nation must have an industrial structure that allows it to establish its economic independence. The nation-state can only exist to the extent that a sustainable balance is achieved. In the 1930s, there was a debate about the benefit of industrialization, which was based on the need to produce goods that at that time were essential to guarantee the political sovereignty of the Nation, but also because the balance of payments would be in deficit if consumer goods were imported massively. This process, which is still developing the country, is import substitution.

Today, the stakes remain similar, but economic, demographic, technological, climate and political changes make it necessary to align the priorities of state policies to ensure their viability and effectiveness. There is no acceptable and sustainable economic policy without a plausible industrial development policy.

Orthodox economists claim that economic nationalism in the countries of the capitalist periphery is a populist proposition, but they avoid pronouncing themselves in that way when such economic policies are applied in Europe or the United States. Today, the United States practices import substitution with electronic microprocessors, and at the beginning of the millennium with oil and gas production, until today it has become an exporter, when in the 1980s it imported almost 25 percent of consumption.

Nor is it a question of copying what is done here or there since there is no single form of capitalist development. History shows that capitalism developed alongside colonialism in the English, French, Dutch, and Belgian cases, but this was not the case in Germany, Austria, Sweden, or the United States, which shows that capitalism can develop indoors.

Nor is there a single model of capital accumulation. This was carried out with a savage exploitation of the workers until the beginning of the last century, but, with the development and hegemony of the welfare economy, the situation of the workers improved, and the process of accumulation continued at an accelerated pace and higher than before. Capitalism does not work best when there is a blind exploitation of workers because the role of demand is essential. Say’s law, according to which supply creates its own demand, is wrong as Keynes demonstrated. The process of capitalist accumulation does not only involve investments, because you have to produce and you also have to be able to sell, and that presupposes the existence of buyers.

The wave of industrial development of a part of the capitalist periphery with financial globalization at the end of the 1960s also shows that industrialization is compatible with very diverse forms of political organization. Communist China has adopted a state-controlled form of economic organization; while in South Korea, Singapore, or Taiwan, authoritarian capitalist forms prevail, but with liberal states. In Japan, capitalist forms are marked by very traditional cultural forms in a liberal state.

Neo-protectionism

The integration of a peripheral country into the global economy means selective but intelligent protection of key industries. We are currently in the framework of a process of reindustrialization of the capitalist center that is breaking with the economic, commercial, and financial forms that founded the globalization of the 1990s (such as the program of massive investments in new technologies such as the IRA (Inflation Reduction Act) in the United States proposed by Joseph Biden and endowed with 350 billion dollars). Neo-protectionism needs to address new proposals through a reflection adapted to this circumstance.

The new industrial policy of the capitalist center is based not only on the development of new carbon-free technologies, but also on the protection of patents, on a very detailed trade protectionism, on a very strict surveillance of the actions of private companies in their relations with “unfriendly” countries, on a reorientation of trade agreements with friendly countries, on the development of new technologies, with a rejection of multilateralism, among others.

This means that the new industrial policy in the United States and the European Union is aimed at concretizing and recreating an independent industry, breaking with globalization, not exempt from social changes outside the neoliberal mold, as the U.S. government has just shown, in favor of significant wage increases in a key industry such as the automotive industry.

Dependency theories showed that adherence to the international division of labor imposed by the ruling classes constitutes an obstacle to economic development and social justice. Economic growth serves to break down subordinate economic relations, whatever the hegemonic power, which presupposes an independent economic strategy of rupture that implies a free industrial policy indispensable to expand economic independence.

The new industrial policy must use a wider range of economic and political instruments that have been condemned by neoliberalism. Today we must postulate that the State should not only play its role in defining social relations and the distribution of income. We must move forward with greater State interference in terms of specific regulations for each industrial sector, but also the provision of inputs such as electricity, the education of future technicians and workers, the functionality of logistics, the definition of a specific tariff and non-tariff protection policy, etc.

The introduction of specific subsidies defined according to the industries, and the generation of an active policy of credit facilities according to the industrial sectors in addition to a specific tax policy. These sectoral policies must be implemented within the framework of a counter-cyclical and proactive economic policy to promote the growth of the economy as a whole.

The end of dependency will not come about by the closure of trade borders or a change in the power of reference, but by the development of industries that allow us to escape the economic constraints of the hegemonic centers. It is necessary to consider that the characteristics of local production that creates high-quality jobs, the concept of national security that allows the circumvention of conditions, and the competitiveness of domestic production with respect to exports from other countries, which are often subsidized, make it essential to compromise State interventions in the productive matrix.

Published in Cash December 31, 2023