Economics

Central Planning Is Poisonous to Innovation

Old ideas that have never worked are no way to foster economic growth.

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"The more things change, the more they stay the same" is the best way to describe the lack of original thinking that is prevalent in politics. Take the recent resurgence of calls from politicians on both sides of the aisle to implement industrial policy.

These calls are motivated to address the (mythical) decline in American manufacturing—and because other countries are doing it. These policies are tired, utterly uninspiring schemes that governments around the world have tried and, invariably, failed at.

The latest example is a proposal by Sen. Gary Peters (D-Mich.) to create a new federal agency called the National Institute of Manufacturing. Not to be confused with the National Institutes of Health, the senator explains, "This will be an executive branch agency that will house our national manufacturing programs under one roof," and effectively coordinate a strategic vision for manufacturing.

But let's examine the problems this scheme is supposed to address. The first is the supposed decline of American manufacturing. In reality, while manufacturing employment has gone down significantly over the last 40 years, U.S. manufacturing output is now near an all-time high. Ironically, it recently dipped a bit because of the trade war now being waged by the same government Peters thinks is necessary to revive manufacturing.

Industrial capacity—the existing ability of American factories and workplaces to produce industrial output—is also higher than at any time in the past, thanks to productivity growth brought about by labor-saving innovation. Contrary to popular belief, this transformation is beneficial, as the increased productivity fuels the significant wage growth enjoyed by those still employed in manufacturing.

As for the notion that "other countries are doing it," I'm curious to hear what great successes have come out of, say, China's industrial policies. In his latest book, The State Strikes Back: The End of Economic Reform in China?, Nicholas Lardy of the Peterson Institute for International Economics shows that China's growth since 1978 has actually been the product of market-oriented reforms, not state-owned programs.

Lardy notes that in 2012, about 70 percent of China's GDP was produced by private firms. He details the toll taken on the Chinese economy by the recent increase in ambitious industrial policies and the growth of the state-owned sector. His conclusion is that unless China reverses course and the growing weight of state-owned enterprises, government debt, and malinvestments, China's growth will wither away.

Why should we want America to become more like China? Here's yet another politician thinking that somehow, the same government that started a war in Iraq on faulty intelligence, botched the launch of HealthCare.gov, gave us the Solyndra scandal, and can keep neither Amtrak nor the Postal Service solvent, can effectively coordinate a strategic vision for American manufacturing.

There are already 58 existing federal programs that offer manufacturing funding through 11 federal agencies. These programs include the crony Export-Import Bank, which props up the bottom line of large domestic companies by offering taxpayer-backed loans to equally large, often state-owned, foreign firms. The senator believes that these agencies' apparent failures are due merely to the fact that they aren't all in the same place. Somehow, moving them all under the care of a manufacturing czar is supposed to unleash their magical powers.

U.S. industrial policies launched in response to the rise of Japan in the 1980s and the USSR before that failed, not because American policy mavens weren't smart enough to do things right. The real problem with industrial policy, economic development strategy, central planning, or whatever you want to call these interventions is that government officials are inescapably plagued by ignorance of localized knowledge. Government officials cannot outperform the wisdom of the market at picking winners. In fact, government intervention in any sector creates distortions, misdirects investments toward politically favored companies, and hinders the ability of unsubsidized competitors to offer better alternatives. Central planning in all forms is poisonous to innovation.

As Peters notes, "If you go on the factory floor in Michigan, it's not your father's or grandfather's factory." Indeed! American companies are in fact fantastically innovative and productive on their own. They have evolved to produce more of what consumers want at lower costs—most of them without a central planner directing them from Washington. Old ideas that have never worked are no way to foster more innovation. Lighter regulations, a better tax code, more immigrants, and freedom to do what they do best are what entrepreneurs need.

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  1. It’s the age-old story. Every authoritarian regime, whether a school board or an emperor, cannot tolerate dissent.

    And government is a sledgehammer, crude and heavy, with room on its handle for only one pair of hands.

    Innovation comes from dissent. Some bright beagle thinks he sees a new way of doing things, a new product, a new way to organize. There’s how dissent starts. He tries to find investors. Spreading dissent, but still mostly private, as he doesn’t want others to beat him to the punch. Then the new company is formed, patents are published, products released,and the dissent is public.

    Central planning just can’t allow that.

    1. Innovation comes from dissent.

      But dissent means making the majority uncomfortable, and the Ahmaris of the right just can’t abide by that. “God’s higher law” and all that.

      1. You’re an idiot. The left is far more about control. And you are as well. Please tell me how you don’t want to force people into baking cakes with messages they disagree with. You know you advocated for that.

        1. Stifling dissent IS control. Are you as dumb as the box the hammers came in, or is it the one the sickles came in?

      2. “But dissent means making the majority uncomfortable, and the Ahmaris of the right just can’t abide by that. “God’s higher law” and all that.”

        Did you find that strawman on the way here or bring it all the way from home?
        Just checking to see how stupid you really are.

    2. “Innovation comes from dissent. ”

      It comes from government, too. The marine chronometer, a timepiece that enabled ships to accurately navigate the globe came about as a result of a generous prize the government offered to the successful innovator.

      1. It happened (presumably) before it otherwise would have. This is similar to the moon landing, which would have happened (in some way) in a free market, just much, much later.

        The issue is, you’re only looking at the benefits, not the cost. The very fact that the market chose not to pursue that tech yet is proof that other things were desired more. That government took from those who desired those other things to make [A] happen is proof that they made people more poor (in the people’s estimation) than if they hadn’t.

        1. “The very fact that the market chose not to pursue that tech yet is proof that other things were desired more.”

          Technological innovation is both risky and expensive. There’s money to be made using existing technology so innovation can wait, With few exceptions, only the government has the resources, the time and vision to develop things like GPS, touch screens etc. For that matter, only the government has the resources and vision and time to go to war, so we should be thankful for small mercies.

          Scientific research is also both risky and expensive, and again government funded projects and universities predominate.

          Innovation entails a cost. Someone needs to spend money to get the innovative researcher educated in the field enough to be able to break new ground, for a start. The free market incentivizes cost cutting, and besides the government will come up with something.

      2. “It comes from government, too. The marine chronometer, a timepiece that enabled ships to accurately navigate the globe came about as a result of a generous prize the government offered to the successful innovator.”

        trueman often posts here to prove that idiots are more than welcome.
        Note how he conflates the profit motive of an inventor with ‘the government’ since ‘the government’ is offering a prize.
        The dimwit somehow believes that offering money for a good is the same as inventing that good.
        You may assume this to be sophistry on the part of trueman, and he will try to support that assumption.
        It’s false; he’s dumb as a bag of rocks.

        1. “The dimwit somehow believes that offering money for a good is the same as inventing that good.”

          The reward was given not so much for the good, but the creation of the good. Its ‘invention’ if I may use a word that’s liable to offend. There were no suitable marine chronometers on the market, you see. And why should there be? Demand is limited to sea dogs. But when the Royal Navy figures it needs something, that’s demand enough.

          Sadly, the inventor was found dead, lost at sea, with a knock-off marine chronometer which he’d bought in London’s notorious Chinese district.

          1. But we no longer see rewards offered for the creation of a good, but rather penalties for the failure to create a good. The difference is I can offer a reward for an impossible good, and that reward will never be claimed, while I can impose a penalty for failure to create that impossible good, and that penalty will always be paid

    3. government is a sledgehammer, crude and heavy, with room on its handle for only one pair of hands

      I’m stealing this line for any comment i may write in the future

  2. We need Government Almighty to take over the production of more-affordable cheap plastic flutes, AKA “lung flutes”!!! Government Almighty has already done such a bang-up job, making sure that none of us get hurt, blowing on a cheap plastic flute w/o the proper permission from a doctor of doctorology!!! Why NOT award Government Almighty with more power to do MORE good unto us?!?!

    To find precise details on what NOT to do, to avoid the flute police, please see http://www.churchofsqrls.com/DONT_DO_THIS/ … This has been a pubic service, courtesy of the Church of SQRLS!

  3. Central planning in all forms is poisonous to innovation.

    Suderman should write a rebuttal. Bailey could weigh in as well. Hell, this whole website could make their case for central planning of trade and monetary policy.

  4. Central planning in all forms is poisonous to innovation.

    Which is precisely why the Trumpists WANT central planning of immigration. They don’t want innovation here! They want to keep the population mix exactly as it is now. Well, perhaps less brown than it is now. But certainly not any browner.

    1. This could be the dumbest thing ever written on reason.

    2. I thought this was an OBL post at first.

    3. “Which is precisely why the Trumpists WANT central planning of immigration.”

      Notice how those afflicted with TDS claim *every* issue to be about their disability, and nothing else.
      NOTHING happens in the universe that isn’t about their fucking inability to grow up.
      Fuck off and die, jeff.

    4. So you agree that central planning is bad? Or only bad when Trump wants it?

    5. Central planning is generally not awesome… But sometimes A plan beats no plan.

      When some genius can explain to me how TRUE open borders would not bring 10s or hundreds of millions of people here, with extremely low educations and economic productivity… Which would ultimately turn us into a 3rd world nation… I will listen. But the fact is it would do exactly that. An incremental steps that direction will do the same. Low skill immigrants drag the national averages of basically everything good down. Hence I favor only skilled immigration.

      I’d rather maintain the USA as a 1st world nation. Open borders would level out wages and living standards globally… That’s awesome if you’re some illiterate dirt farmer from some shit hole country… But if you’re in a 1st world nation, not so much.

      So fuck illiterate peasant foreigners. Let them send us their engineers, but their dish washers can stay at home.

  5. “This will be an executive branch agency that will house our national manufacturing programs under one roof.”

    Wow! I had heard the US manufacturing isn’t much anymore, but can it really be put all under one roof?!

    Seriously, read The Road to Serfdom for a classic take on central planning.

  6. Hmmm… National Institute of Manufacturing… I’m looking but don’t see it authorized in either Article I or Article II… still looking… not in Article III or IV either…

    Nope, doesn’t seem to be anywhere in this document — you know Sen Peters — the same document you swore to uphold and protect when you joined Congress.

  7. “These calls are motivated to address the (mythical) decline in American manufacturing—and because other countries are doing it.”

    China is not wringing its hands over the decline of manufacturing. According to their latest 5 year plan, the Chinese are abandoning the emphasis on heavy industry and concentrating on AI and information technology. Chinese social media are more innovative than American counterparts, allowing users to shop etc.

    1. “China is not wringing its hands over the decline of manufacturing. According to their latest 5 year plan, the Chinese are abandoning the emphasis on heavy industry and concentrating on AI and information technology. Chinese social media are more innovative than American counterparts, allowing users to shop etc.”

      Cite(s) missing, and will remain so. Bullshit from trueman is meant to be accepted on its own, since trueman is so, uh, something:
      mtrueman|8.30.17 @ 1:42PM|#
      “Spouting nonsense is an end in itself.”

      1. “According to their latest 5 year plan”

        Isn’t that a cite? It is. Teach yourself Chinese, read it, and get back to me in 5 years.

        “mtrueman|8.30.17 @ 1:42PM|#”

        Those were the days my friend. You should not be afraid to show us your sentimental side.

  8. Don’t tell me…they’re still ascribing magic in Japan to MITI?

  9. […] Central Planning Is Poisonous to Innovation Veronique De Rugy, Reason […]

  10. Not that we need some BS like discussed here… But it always irks me when people shit on manufacturing.

    It’s still a HUGE part of the economy. More people make money in manufacturing than all the fag tech companies in the USA combined.

    And our manufacturing sector is in shambled. The 2nd and 3rd largest 1st world nations in the world, Japan and Germany, both have manufacturing sectors that are DOUBLE what ours is as a percentage of the economy. Even dodgy nations like Italy, Greece, and Spain have stronger manufacturing sectors than us.

    Just like people ignore farming as being anything important, the same is true here… Yeah, it’s not 90% of people farming anymore, or 40% working in factories… But it’s not something to simply hand wave away as an unimportant thing.

    We can and should manufacture more stuff here. We should have policies that help with that. Like lower taxes, and less regulation. No Manufacturing Czar is needed, but I hate the dismissal of the whole sector like it doesn’t matter that we’re weaker in this area than GREECE. It does matter, and we should try to fix it with GOOD policies.

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