So tell us about this wonderful world of
industrial policy. I mean, sometimes we criticize it and it
looks like right now the United States is embracing it.
Where are we globally on industrial policy?
You know, this is one of those things where it's a fast moving bit of a bit of
economics, certainly of economic policymaking.
You know, for decades, certainly when I was first learning about industrial
policy and economic policy, it was it's kind of a dirty word, certainly Capital
I capital P industrial policy, because it was the idea made it more popular in
the fifties and sixties that governments could spot strategic industries and
invest in them. And the line I was always given that
they were good at picking losers, they weren't good at picking winners and that
you could waste a lot of money doing that as a government.
And if you were going to do it successfully, well, the only places that
had done that were maybe places like Korea or Singapore, where you had highly
effective states and you had, you know, these were emerging market economies
that had a path to follow. They could see what other countries had
done. So they had less chance of getting it
wrong. And what's changed, I think, you know,
like so many things, has been upended by the different geopolitical outlook.
You know, that what you think of as even, you know, what a winner would be
in a context where you could have in ten or 20 years time a decoupled global
economy really changes. You know, it could be you may have
wasted a lot of money and an economist might have said that is a big you've
inefficiently used those resources. You're not making profits.
You've produced excess capacity of a good in the global market from doing
this industrial policy. But if in 20 years time you find that
you're the only place with, say, a solar panel industry on one side of a big
economic divide in the global economy, well, maybe all that quote unquote
wasted money will turn out to have been well spent.
So I think everyone's having to kind of rethink what success and failure looks
like in an industrial policy context. But we certainly could be in for wasting
a lot of money with these subsidies, whether it's a good thing or a bad
thing. How much of this do you think is
triggered by China? Because China is now the second largest
economy, some things that may be on its way to first, it certainly embraced
subsidizing industry quite a bit. The Biden ministration criticizes China
a great deal for that, but it's an enormous amount of money.
How much of that is the rest of us being afraid that they will overwhelm us?
Well, and I think it's also it's not just the fear, right.
It's actually the reality in some key sectors.
I mean, green technology is a classic example.
We're now looking at how much Chinese EVs, electric vehicles are just sort of
swamping the global market. A lot of subsidies have certainly gone
into that. The European Union announced an
investigation into EVs and they've already been burned when it comes to
solar panels because the European Union had invested a lot in developing, wanted
to have a big domestic solar panel industry was just wiped out of the water
by by China. There's the sheer scale of Chinese
production. Now, 90% of solar panels in Europe are
made in China and actually a very high proportion in the US as well.
So, you know, China is driving this, but of course if you're Europe, it's also
the Biden administration's response to China, things like the Inflation
Reduction Act. You know, the the Europeans have felt
like they had to have their own thing. They announced the Net zero Industry Act
last year was very explicitly about building the European domestic green
energy systems and products so that they weren't going to end up reliant on
China. And how much pressure is there on
Europe. That's what the IMF warned about, that
they thought that Europe would go that direction, warned that that was not a
good idea. They're better off breaking down some of
the trade barriers that they already have internally.
At the same time, there's a general perception that the European economy is
not as efficient, is not as competitive as the US economy, and maybe some others
right now. Do they need to do of some sort of large
fiscal infusion to really get competitive?
I mean, I suspect certainly the International Monetary Fund would say it
is as much about developing the single market and working as a cohesive bloc as
it is about spending lots of money. Yes, there's going to need to be a lot
of investment funds for green technologies, for decarbonizing the
economy, potentially for taking advantage of digital technologies that
Europe hasn't hasn't been able to do as well as as the US.
So a basic principle of ethics that I learned back when I was in college was
art implies can which just say, you say you ought to do something first.
You have to be able to do it. When you say you have to kind of jump
competitively Europe to the United States, can it do it?
Is it possible or are there structural factors that really mean that it's never
going to catch up? Well, I think even the philosopher
Immanuel Kant was wasn't quite sure whether aut implied Kant.
And certainly when you're a policymaker, you often find that does not imply Kant
at all. If you're a voter, you often find that.
So I mean, clearly Europe, as I mentioned, has been trying to do this
stuff for a while. I think it is interesting that they're
focusing, particularly when they're talking about investing in green
technologies now. Their minds have been focused by what
has happened with China and the fact that they've basically lost the battle
on solar panels. So they're thinking about how can they
invest in a smart way, not completely matching China on scale, but maybe
matching or exceeding it on quality innovation, also thinking about how they
work together. So individual countries now, if they're
all warring against each other, you know, having battling subsidies against
each other, that's obviously going to be a disaster.
Is there the political will in Europe to really become more competitive
economically? Is this a political issue that is on
voters minds? I think it's always one of those things
that is talked about a lot in Brussels by the European Commission always sounds
a bit boring. Even the phrase European
competitiveness. I mean, voters have had the have have
heard politicians talk about it a long time and even worse, while these capital
markets union, which they've been talking about for for literally years,
decades. But, you know, if you have the kind of
pool of investment capital that you have in the US, you're not just relying on
bank finance, which obviously is the dominant source of funding for companies
for investment in Europe, you know, that does open up a lot of opportunities.
So I think voters understand that the green transition is a big deal.
Decarbonization. They're worried about the costs of that.
They understand that may be a more kind of European energy market, might be a
good way of doing that. They certainly noticed the number of
Chinese EVs on the streets of of Germany, of France, of all these
countries. Whether they're really ready to make
sacrifices for that, that is less clear.
