Biden’s economic plan gets many things right

Presidential candidate and former Vice President Joe Biden has just released a major industrial policy plan for reviving US manufacturing. The proposal is the first in a four-part series called Build Back Better, which will also address economic recovery, infrastructure, clean energy, racial equity, and modernisation of healthcare, child care and elder care.
Biden’s plan should immediately make one thing clear: The era in which free trade was a centerpiece of the elite economic consensus is well and truly over. Although President Donald Trump embraced a blunt form of protectionism and thinkers on the right have been floating ideas about industrial policy, there was always the possibility that Democrats would hew to a Clintonite free-trade position. But Biden’s announcement proves that Democrats, too, are squarely in the industrial policy camp.
But even though Democrats and Republicans now agree that some sort of industrial policy is desirable, the harder question is what to do. Trump’s tariffs have resulted in economic losses for the US and offended key allies, while failing to stem the decline of manufacturing or the out-migration of high-tech industries.
One good part of the proposal is a large federal investment in research and development. Biden’s plan would spend $300 billion on R&D, even more than the amount now being considered in Congress. This not only would revitalise the competitiveness of US industry, it would help sustain college towns under threat from cuts in state funding and declining tuition revenue. A second strength of the plan is education. Biden would invest in community colleges, apprenticeships and other alternatives to expensive four-year colleges. Alternative education of this sort has been used to great effect by Germany, and it has helped that country maintain a solid manufacturing base even in the face of Chinese competition. In addition to manufacturing competitiveness, this could shrink the gap between the educational haves and have-nots.
Another potentially good idea, if well executed, is supply-chain internalisation to protect against pandemics and other disasters. The coronavirus outbreak has left top economists scratching their heads as to how the world’s greatest economy could fail to produce items as prosaic as face masks and cotton swabs. The problem is that during normal times, US companies concentrate on the profitable parts of the supply chain — design, marketing and the provision of final goods and services — instead of on the boring, low-margin stuff. That makes economic sense right up until the point where a crisis strikes.
Biden’s plan would leverage public-private partnerships to identify the missing pieces of the US’s internal supply chains and fill in those gaps. He’d use a number of other incentives, including taxes and subsidies, to encourage companies to retain the ability to make everything the country would need in an emergency.
Though pandemic preparedness is the obvious goal, there’s also another concern — the ominous possibility of intensified tensions or even conflict with China. Biden’s plan would also try to internalise the supply chains for semiconductors, electronics and other high-tech equipment that would be crucial in any clash.
With regards to the revitalisation of US manufacturing, Biden strikes the right notes — public-private partnerships and manufacturing extension services.

—Bloomberg