This Is How Industrial Policy Can Go Bad

SPEAKER_2 (0:02)

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Joe Weisenthal (0:18)

Hello, and welcome to another episode of the Odd Lots Podcast. I'm Joe Weisenthal.

Tracy Alloway (0:23)

And I'm Tracy Alloway.

Joe Weisenthal (0:25)

Tracy, you know, we obviously talk a lot on the show about US industrial policy and these various investments we're making in things like chips, clean energy, batteries, and so forth. Did you see there was some actually good news on the chips front recently?

Tracy Alloway (0:37)

Oh, what was that?

Joe Weisenthal (0:39)

The new fab that TSMC is building in Arizona is getting as good yields as their existing fabs in Taiwan. At least in theory, it looks like Americans are capable of building as well as anyone else in the world. At least in theory.

Tracy Alloway (0:57)

That is fab, Joe. That's fabulous fab productivity news.

Joe Weisenthal (1:02)

Have I told you, by the way, since you joked about that, I really think fab apostrophe less, like fabless, semiconductor would be a really good name for a chip company.

Tracy Alloway (1:11)

Oh yeah, I think you've pitched this once before. I agree with you. That would be good.

Joe Weisenthal (1:15)

But okay, so setting aside that one plant, which hasn't actually opened yet, I believe, I think that it's scheduled to open in 2025, setting aside good signs of positive yields there, like I remain anxious about whether any of this is going to ultimately work, or whether we're gonna have a lot of billions and billion dollars spent in either unproductive plants or plants producing stuff that there really is an end demand market for. Like, if it all turned out to be a waste of tens and tens of billions of dollars, let's just say I wouldn't be shocked.

Tracy Alloway (1:48)

Well, I don't think you're alone in your concern. I think there is a wider recognition nowadays that there are areas of the economy or certain businesses that might be strategically important where not enough capital is flowing into through the private market. And so maybe the government wants to do something to build up those industries. It feels like in general, there is more of a recognition or perhaps acceptance of that idea. But as you say, there remain some very, very big questions about the specific design of industrial policy and the idea of, well, you know, maybe there's good and bad industrial policy. Maybe if you throw money at a particular industry through subsidies or whatever, then all you're doing is building up over capacity that eventually is not going to be able to compete on the global stage. And I think those are very valid critiques. And we have seen a number of examples throughout history of industrial policy that hasn't quite worked out as intended.

Joe Weisenthal (2:48)

Totally. And I think there's a few other dimensions here that I think are important. So one is when we talk about industrial policy throughout history or development strategy for a lot of countries, it's like a a lot of it has failed. countries have tried to industrialize or rise to some level where they have competitive manufactured goods without working out. Two is the fact that one thing that's unique is we're not a poor country and we're not a country that's like trying to rise per se in the development ladder. So a lot of theory of industrial policy is sort of talking about countries, many of them in East Asia that have succeeded or others that have failed. But those were countries that were when they started quite poor relative to us and we're rich. And a lot of our anxiety is about specific sectors rather than the sort of wealth of the economy as a whole. So there is a lot to dive into on this topic.

Tracy Alloway (3:39)

Well, the other difference that comes up a lot is political systems.

Joe Weisenthal (3:43)

yes.

Tracy Alloway (3:43)

Right? So we're a democracy and a lot of countries that have, to some extent, successfully democratized. You often hear the argument that they were only able to do it because they either had a command economy or perhaps they had authoritarian leaning regimes and things like that. So I think the design of industrial policy, its success, its failure is definitely a worthy topic.

Joe Weisenthal (4:07)

Totally. Well, there's a lot to dive in on, so we should get right into it. We really do have the perfect guest today. We're going to be speaking with Vivek Chibber. He is a sociology professor at NYU and he's written a lot on development and industrial policy among many other things. So thank you so much for coming in.