January 29th, 2012
08:00 AM ET

Zakaria: Does America need an industrial policy?

Editor's Note: Be sure to catch GPS every Sunday at 10a.m. and 1p.m. EST. If you miss it, you can buy episodes on iTunes.

By Fareed Zakaria, CNN

President Obama spoke forcefully in his State of the Union about the importance of reviving manufacturing in America. If you talk with economists they will tell you it's a very complex problem, involving tax, trade regulatory policy, exchange rates, and educational skills. It is all those things.

But when you move from high-level policy to specific cases, you will often find one element that is rarely talked about: a foreign government’s role in boosting its domestic manufacturers with specific loans, subsidies, streamlined regulations and benefits. In effect, these governments - many in Asia, though some in Europe as well - have a national industrial policy to help manufacturers.

In a front page story last week, the New York Times detailed how Apple's iPhone ended up being made outside America. The Times wrote about the Apple executives who visited a factory in China to see if it could cut the glass precisely for the phone's touch screen. When the Apple team got there, the factory owners were already constructing a new wing. "This is in case you give us the contract," the manager explained.

How could they afford such an extravagant gesture? Well, it turns out, the Times noted, that they received subsidies from the Chinese government. That one incident is part of a pattern.

In 2009, for example, Bridgelux, a light-emitting chip manufacturer in the United States, was searching for a new factory site, the company considered the cost of building in the U.S. and elsewhere. The government of Singapore offered to pay half the setup cost of the plant.

"Why can't we do that here in the U.S.?" the CEO Bill Watkins asked.

Andrew Liveris, the CEO of Dow Chemical, has been arguing for a national policy aimed at reviving manufacturing. In his book, Make It In America, Liveris argues that not only would a manufacturing policy produce good, long-term jobs, it would upgrade the job skills that are crucial to keeping innovation alive.

"Innovation doesn't just happen in laboratories by researchers," he told me. "It happens on the factory floor. The process of making stuff helps you experiment and produce new products. If everything is made in China, people there will gain the skills, knowledge and experience to innovate. And we will be left behind." He worries that with tablets like the iPad and Kindle being made mostly in Asia, the next generation of these products could well be imagined there.

Companies can't compete with countries, he says.

Take solar energy, an industry largely invented in America, in which the manufacturing has largely moved to China thanks to massive state subsidies. Or consider wind turbines: China's biggest windmill makers have received more than $15.5 billion in credits from state-owned banks.

As a result, despite many concerns about quality, they won their first major foreign orders in the past year.

In theory, I am deeply skeptical of government industrial policy. Government doesn't know how to pick winners and losers, it makes mistakes, the process gets politicized.

And yet, when I look around the world, particularly in Asia, I see governments playing a crucial role. They do make mistakes – their versions of Solyndra – but they seem to view it like venture capitalists.

Their role is to seed many companies, only a few of which will succeed. Once successful, the government helps these companies to compete against big American multinationals.

There used to be a joke about Marxist economists who would say of a deviation from pure Communist economics: "It might work in practice, comrade, but it doesn't work in theory."

That's what industrial policy looks like these days.

The theory doesn't make much sense but it's hard to argue with the results.

For more on this, you can read my column in this week's TIME Magazine.  For more of my thoughts throughout the week, I invite you to follow me on Facebook and Twitter and to visit the Global Public Square every day. Be sure to catch GPS every Sunday at 10a.m. and 1p.m. EST. If you miss it, you can buy the show on iTunes.

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Topics: Fareed's Take • From Fareed • Jobs • United States

soundoff (103 Responses)
  1. pmcdonald

    By the way, why do you continue to invite right wing revisionist historian Niall Fergusen onto the program to talk about economics? He is a historian. He knows less about economics than we knew in the 1920s. Please invite him on ONLY to discuss historical questions and ONLY together with an ideologue from the extreme other side. Fergusen seems rational, but remember, he is an angry right wing revisionist historian and should only be allowed airtime in a situation where he is challenged.

    January 30, 2012 at 7:53 am | Reply
  2. James

    Democracy has been a monumental failure. The petty concerns of special interest groups are proof of this. We should adopt the Chinese system of government. Then we will have growth again.

    January 30, 2012 at 8:18 am | Reply
  3. joe anon 1

    an industrial policy to go along with its de industrial policy.

    sure, why not.

    also, re program sunday, wahday ghanfar was destroying the zionist imperialist shill/propagandist, niall ferguson, untill you saved niall's rear by going to a break.

    January 30, 2012 at 1:24 pm | Reply
  4. Phil Jones

    As usual Fareed Zakaria spreads his anti American propaganda about the US. The fact is the US manufacturing base is bigger than ever when it comes to Air Craft, Machinery, Automotive and Agricultural processing. China does what a lot third world countries do. They supply cheep labor for consumer electronics, apparel, toys and assorted trinkets. China can't even produce an automobile worthy of an American market. Don't confuse the crap people buy at Wall-Mart with aircraft, automobiles, and industrial machinery. All that crap they make is for consumption at a low price. As far as I'm concerned they can continue to produce it for my amusement.

    January 30, 2012 at 2:38 pm | Reply
  5. Nick

    the problem is to multifarious to make suggestions like this. we need to do nultiple things all at once to have even a hope of turning this nation around. education, inner city decay, competivness in international markets etc all need to be delt with as one . all of this contributes to the problem and need to be delt with.

    January 30, 2012 at 5:00 pm | Reply
  6. mark

    Yes its called cheating by the WTO which china is part off, cut these industries off from out markets now, Boeing is next FYI!

    January 30, 2012 at 5:01 pm | Reply
  7. Chris

    I think when U.S. talks about what they hate about China's economic or currency policy, they need to 1) know what they are talking about and 2) be specific and be able to give detailed facts. "Credits from China State Owned Bank", you mean like a loan? How is that significant? U.S. has hundreds of venture capital and private equity firms that China does not have, which can provide funding too. And what kind of "subsidies" are you talking about? U.S. companies consider "subsidies" or "tax breaks" they can get from the local government when they are choosing which U.S. state/city to move their head quarters to. This is just the same on a global scale. It is nothing new to anybody. Why act so surprised.

    January 30, 2012 at 5:05 pm | Reply
  8. ma.curd

    Hopefully a national manufacturing policy doesn't eventually result in nationalizing the banks.

    January 30, 2012 at 7:32 pm | Reply
  9. Amit-Atlanta-USA

    Firstly, it's just foolhardy to compare communist China with capitalist America! What Mr. Zakaria suggests is at best a far cry given that we are still hearing reverberations of our failed attempts at propping up companies like Solyndra and Ener1, or even bailing out GM & Chrysler.

    So, rather than an industrial policy what we need in America is, as President Obama rightly said, a tax policy that rewards domestic manufacturers, and zero taxes on repatriated profits, especially when the profits are used to create new jobs right here in America.

    Having said, that inspite of impressive credentials (on paper!) many of Mr. Zakaria's articles really lack any depth and appear to be only an excercise in sensationalism designed to captivate only less informed Americans.

    Othertimes, the articles are just a rehash of info/analysis published elsewhere, with some of Mr. Zakaria's own interpretations thrown in (Fareed's Take!).

    However he preserves his very best skills for issues closest to his heart, be it maligning the valiant Jewish people, or crtiicizing magnaninmous Americans/Indians/Europeans for their (percieved) discrimination of Muslims, or trashing Russia for its handling of the Chechyan crisis, or condemning India for its rule in Kashmir (which he calls Martial Rule) etc.

    Poor Job Mr. Zakaria!

    January 30, 2012 at 11:16 pm | Reply
    • Miss Such-and-Such

      No need for 0% taxes on repatriated money. Just charge tariffs on the products when the US companies try to repatriate THE PRODUCT for sale to the US consumer/worker.

      February 3, 2012 at 11:47 am | Reply
      • lagerlund@sbcglobal.net

        Romney would LOVE a 0% income tax on "repatriated" funds. Hey..for Romney, the 45 Million he has stashed in the Cayman's and the tax he would, AGAIN, avoid bringing that money home, is a mere "pittance". But...Hey!....A Million Saved is a Million earned!

        February 5, 2012 at 10:53 am |
  10. Hanuman Capital

    Reblogged this on Hanuman Capital.

    January 31, 2012 at 12:04 am | Reply
  11. johnny

    USA needs to market their products extensively, and compete with other overseas brands. This is not done. Any more over reliancve on American consumers will spell doom for most manufacturers. Because Americans are now starting to save money.

    The other point is US goods cannot be priced like you are selling to free spending American consumers. Prices should suit foreign consumers, and compete favorably in foreign markets. American goods and services are desired by Asians if they are priced only slightly above locally made ones..

    Go for big volume exports – instead of high markup price tags. It will be worth the economy of scale marketing in Asia and other emerging countries. The market there is ten times bigger – and they are prospering.

    5 million jobs can be created instantly.

    February 1, 2012 at 10:15 am | Reply
  12. RCDC

    Yes. Everything in US should be made in US. This will encourage more employment.

    February 2, 2012 at 1:49 am | Reply
  13. Miss Such-and-Such

    We just need tariffs. We do NOT need to mimic Asian countries, as they have never been able to achieve much. Just bring back the tariffs and everything will be fine.

    February 3, 2012 at 11:43 am | Reply
    • johnny

      Are you still living inside that frog's well, and have a tunnel vision ?

      Asia is going to lead the world in technology and trade. Already China will have a space station in outerspace and this is achieving alot in a decade. New technology ideas will come out of it. They will be testing new inventions.

      China is able to provide jobs for 600 million of its citizens in a short period of time – from scratch.

      The problem with America is this : better than you , holier than thou, bigger than others mentality. Americans are buying houses they cannot afford, living on credit, and overeating like there is no tomorrow. The entire USA has been living on credit – and the net result is the Government is broke and Americans are poor today. 15% of Americans are living in abject poverty – ths is shocking indeed.

      Asians now see American under a different light. "We dont see Americvan tourists nowadays. They are bankrupt" said one tourist retailing shop.

      So, I wonder who are the poor achievers – ordinarry Americans or Chinese? Of course, there are smart American innovators and inventors, but only a few.

      February 3, 2012 at 10:26 pm | Reply
  14. rightospeak

    My comments are disappearing-any reason ?

    February 3, 2012 at 12:11 pm | Reply
  15. rightospeak

    Well , it looks OK , now. I thought that maybe moderators are removing what they don/t like to mold the public opinion.

    February 3, 2012 at 12:13 pm | Reply
  16. rightospeak

    So now, I will say what I wrote before. No , we do not need industrial policy. We need to bring our economy and capital back from China ( Warren Buffett- please pay attention ), close our borders and stop all wars as Ron Paul proposes.

    February 3, 2012 at 12:18 pm | Reply
  17. TomTheTaxPayer

    Only socialists and communists want dictatorial power over the economy, always resulting in utter failure. Doesn't matter if they are Middle Eastern socialist dictators or European socialists, or Mexican socialists. All fail. You are foolish to suggest it.

    February 3, 2012 at 9:20 pm | Reply
    • Blimfark Smith

      So when the Chinese kick our asses in the next World War - or simply eclipse our influence and access to markets & resources - because we let the "free market" drain away our manufacturing base to countries that *do* subsidize their industries... what then? Can we please stop peeing our panties over the socialist boogieman and take an actual, practical approach to our strategic interests? Please?

      February 6, 2012 at 4:52 pm | Reply
  18. .

    America's industrial policy? Sure. Get the hell out of the way - AND DECERTIFY THE F7CKING UNIONS.....

    And if you don't believe that, just ask an American Airlines employee who was lied to by the unions about their job, their benefits, their pension - AND THE FINANCIAL HEALTH OF THEIR LIVELIHOOD.

    February 4, 2012 at 6:11 pm | Reply
  19. lagerlund@sbcglobal.net

    No country has EVER survived on "service" jobs. Manufacturing MUST be brought back to the United States (with subsidies, Tariffs, Trade Blockages, Cancellation of "free trade"). If not, China will takeover this country. If not, you'd better start learning Mandarin!

    February 5, 2012 at 10:43 am | Reply
    • Bill

      You need to educate yourself on what has happened in the last 30 years. There is no manufacturing supply base left in the US. Remember the recent floods in Thailand, and how they impacted the manufacture of American Autos in this country. It's that way across the board. Google Apple-not-so-cool-after-all and make sure you read the entire article. This is being repeated from company to company throughout the US. I'ts a bit late to do anything now.

      February 5, 2012 at 11:02 am | Reply
      • johnny

        I think America has to compete and collaborate with Asia, and the emerging economies, in manufacturing US goods in America soil for export.

        It is amazing that things like American made household products, fashion and shoes etc.... are not widely sold in Asia! This is partly due to lack of any marketing and promotion of US products outside America. American factories are simply contented with selling to locals at home – at high markups.

        There was as case of some Idaho potato growers who visited an Asian city 2 decades ago after they received several container loads of potatoes. They came because they were surprised Asians eat potatoes this much! That is history now. American potatoes are now literally flying to Asia on every refrigerated cargo space available. These American farmers have appointed a local importing agent to handle orders.

        But it is only possible if US immigration law allows these foreign own factories to bring in their own national workers. Of course they can only employ like 40% of foreign workers but 60% must be American employees.

        This should stop Mormon Mitt Ronmey from blaming China for stealing and cheating American jobs.

        I expect, soon, China entreprueners Chinese will soon set up or buy over factories in US. And sending their American made goods back to China – to sell at affordable prices. Because US made goods are highly desired by Asians.

        February 6, 2012 at 3:44 am |
  20. johnny

    Repeating above post (error in my cut and pasting)

    I think America has to compete and collaborate with Asia, and the emerging economies, in manufacturing US goods in America soil for export.

    It is amazing that things like American made household products, fashion and shoes etc.... are not widely sold in Asia! This is partly due to lack of any marketing and promotion of US products outside America. American factories are simply contented with selling to locals at home – at high markups.

    There was as case of some Idaho potato growers who visited an Asian city 2 decades ago after they received several container loads of potatoes. They came because they were surprised Asians eat potatoes this much! That is history now. American potatoes are now literally flying to Asia on every refrigerated cargo space available. These American farmers have appointed a local importing agent to handle orders.

    I expect China entreprueners will set up or buy over factories in US. And sending their American made goods back to China – to sell at affordable prices. Because US made goods are highly desired by Asians.

    But it is only possible if US immigration law allows these foreign own factories to bring in their own national workers. Of course they can only employ like 40% of foreign workers but 60% must be American employees.

    This should stop Mormon Mitt Ronmey from blaming China for stealing and cheating American jobs.

    February 6, 2012 at 3:53 am | Reply
  21. Valery Somiety

    As the end of the atomic age is nearing an end, I wish to welcome you to the ethereal age. The search for Hicks Boson shall soon be abandon for a higher truth, a truth that does not lie in matter but that which lies between all matter. That which is the aether, the invisible energies, the explanation of matter, gravity and the first baby steps in T.O.E. These things soon to be revealed will help us final understand the universes, but the real mysteries have always had to do with consciousness. Thx keep strong I will begin to share what I know this year. You’re going to hate it, and love it. Valery

    February 26, 2012 at 1:16 pm | Reply
  22. News tools and equipment as I see

    Hello, Neat post. There's a problem along with your web site in web explorer, might check this? IE nonetheless is the marketplace chief and a large part of other folks will omit your wonderful writing because of this problem.

    December 11, 2012 at 9:24 pm | Reply
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