Needed for Job Growth: Industrial Policy, 01/03/11

We need to focus on developing a growth industry. The New York Times, 01/01/11: “President Obama’s recent tax-cut deal with the Republicans included measures to support growth, notably extended unemployment benefits, and the payroll tax cut.” It is a euphemism to characterize unemployment benefits as stimulative; they only postpone a drag on the economy, and they will not create new jobs.

We need to stimulate a new industry that promises domestic jobs. In bygone days we used to say “as Detroit goes, so goes the nation,” but too much of that industry has been outsourced to imports and imported parts, and transfer pricing affords foreign suppliers to retain earnings in their own countries.

The 1990’s saw an economy supported by the nascent internet industry, and the 2000’s saw home construction leading the way. Both, unfortunately ended in bubbles, but such “creative destruction” is the way of normal boom and bust cycles.

There is no more promising industry to create jobs than in renewable energy, particularly solar and nuclear, but that will require a robust industrial policy to support private investment. This is the role that government should play to incentivize the private creation of jobs, while reducing our dependence on imported oil.

Our industrial policy will have to include domestic content provisions that skirt WTO restrictions, just as China has managed to do in building its industries. China now produces half the world’s supply of solar panels and exports 96% of them to the U.S. and Germany. Domestic content provisions will assure that we capture solar manufacturing jobs, here, for our middle class.

Overall, we must find the way to create and hold these domestic manufacturing jobs in the face of ridiculously low Asian labor costs. In the absence of such policies, CEO’s can be expected to outsource all the new ideas for production to Asia for the benefit of their shareholders and their own stock options.