Does the United States Need a More Targeted Industrial Policy for High Tech?

Abstract

Industrial policy is experiencing a major revival in the United States as policymakers and pundits of various ideological backgrounds propose ambitious new government schemes to boost innovation in a wide variety of sectors. Much of this advocacy focuses on creating detailed blueprints to encourage industrial development in various “strategic” high-tech sectors, such as semiconductors, 5G wireless networks, and artificial intelligence. Many of these planning proposals are framed as a response to Chinese and European industrial policy efforts. The recent history of high-tech industrial policy efforts, however, is spotted with costly failures. In light of the difficulties inherent in more targeted industrial policy approaches, the United States should instead focus on the policy prerequisites that helped give rise to the computing and internet revolutions: a more generalized approach to economic development rooted in light-touch regulation and taxation of emerging technology. Of course, industrial policy will always be with us to some extent, given the sheer size of government and the many existing programs already devoted to economic development or high-tech initiatives. Policymakers should therefore favor programs such as competitions, which minimize taxpayer risk and cost while also encouraging more innovative outcomes.