Are we all protectionists now?

SPEAKER_1 (0:01)

I think the big questions for equity risk taking, broad risk taking is basically, will AI save us, will technological advances beat the various headwinds that we get from deficits, demographics, de-globalization. That tension is there for the next few years.

SPEAKER_2 (0:18)

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Robert Armstrong (0:35)

Pushkin.

In just a few days, Americans will stare in dull horror at their television sets as Joe Biden and Donald Trump debate.

One area where these two senior citizens mostly agree, however, is on protectionism. It's an amazing turnaround in our national attitude towards the government meddling around in business. Today on the show, the return of industrial policy. This is Unhedged, the markets and finance podcast from the Financial Times and Pushkin. I am Rob Armstrong coming to you from Unhedged World Headquarters in New York City. Joining me down the telephone line from the United Kingdom is Martin Wolf, the FT's chief economics commentator and noted podcast host. Martin, you have a new podcast yourself, don't you?

Martin Wolf (1:33)

Yes, it's my second series. They've both been on Democracy and this is called Democracy's Year of Peril.

And that is to celebrate or to note the number of hugely important elections that are occurring in 2024

Robert Armstrong (1:49)

All right, Martin, let's talk about industrial policy. Looking back over the modern history of capitalism, say 19th century and onwards, are there examples that stand out of really successful and or really disastrous industrial policy?

Martin Wolf (2:09)

Well, I suppose the most successful must start with the United States. Alexander Hamilton's view of the United States in the early 19th century created US industrial policy. Germany in the late 19th century was definitively another example.

And in the post-war period, I think we would look at the Japanese, the South Koreans, the Taiwanese. These are probably the great modern examples of success.

Robert Armstrong (2:40)

I think of Hamilton as a kind of financial innovator building a banking system in the United States or laying the groundwork for one rather than being an industrial policy figure. Am I misremembering and revealing my ignorance?

Martin Wolf (2:56)

He was very interested, and the people at that time were very interested, in building infrastructure, in using protection, tariff protection, sounds familiar, to get industries to move and to develop in the United States after moving from the United Kingdom, which was then the leader.

And he was actually quite interested in getting know-how into the US too. So Alex Hamilton is regarded with a very famous German economist Friedrich List as one of the intellectual fathers of the idea of the infant industry protection.

Robert Armstrong (3:34)

And in the story of the growth of heavy industry in places like Japan, South Korea, China, that has been a government-led phenomenon, or at least that is how I perceive it.

Martin Wolf (3:48)

I think it's fair to say that it's been government-led and influenced in a number of respects, and China indeed is a very important recent example, with a combination of guided finance and protection at the border. A combination of those two things promoted investment in and development of heavy industry, which included not just steel, chemicals, things like that, but also the automobile industry and other examples of that kind.

Robert Armstrong (4:23)

Martin, you are shocking me.

You are talking like a proponent of tariffs and protection, and you are meant to be the great exponent of the power and beauty of globalized trade. This is an appalling performance so far.

Martin Wolf (4:41)

The lesson I learned when I was at the World Bank, which is when I really started looking at this, that most cases are disasters.

So, I worked on India. I looked very closely at countries like Argentina, Brazil, but slightly more successful, both of which were all these examples. They tried very hard to create competitive, modern industries through protection. And the list of such failures is very, very, very long. But there are some examples of success.

And I think the United States is one of them, but it didn't have so far to get to the frontier. Germany is certainly a success. Industrial development was remarkable. And I think the East Asian stories that we've been discussing are also a success. So you have to sort of work out, well, when is it going to work? And when isn't it?

Robert Armstrong (5:33)

Exactly, that's the very nub. That's the question.

Do we have even a vague sense of what the defining characteristics of the successes versus the failures are?

Martin Wolf (5:43)

There's an enormous literature on this. And of course, with all such literatures, there's no real agreement. But I will put forward what I think the essential things are.