Hello, everyone. Thank you to Fred Kempe and the entire Atlantic Council staff for hosting me today. I’m very excited to speak with you all. We meet today at a unique inflection point for American economic policy. Unique in the speed and strength of our economic recovery. At the beginning of this year, our economy was in a tailspin, job growth had stalled, and we were losing, on average, 3,136 people per day to the virus.1Our World in Data COVID-19 Dataset
Today, we’re in a very different place. COVID-19 deaths are down 85 percent. We’ve averaged more than 500,000 new jobs per month, for the last four months; our economy is growing at the fastest growth rate in almost forty years. In fact, the US is the only major economy where future growth projections are stronger now than they were in January 2020. This is a direct result of our vaccination effort and our fiscal response—and an economic strategy to drive growth from bottom up and the middle out.
At the same time, this pandemic exposed unique economic vulnerabilities. Empty store shelves, shortages of basic medicines, supply chain bottlenecks from computer chips to advanced medical equipment. The acute crisis exposed a long-term hollowing out of our country’s industrial base, occurring over decades. Nearly 90 percent of generic active pharmaceutical ingredient facilities are located overseas and have been moving offshore for the last fifty years.2Food and Drug Administration, Testimony before the House Committee on Energy and Commerce, Subcommittee on Health regarding “Safeguarding Pharmaceutical Supply Chains in a Global Economy,” October 30, 2019 Until the 1980s, the United States was the world leader in rare earths production. Now, China controls 85 percent of global refining capacity.”3Does China Pose a Threat to Global Rare Earth Supply Chains?,” CSIS: ChinaPower. May 12, 2021. Does China pose a threat to global rare earth supply chains? (csis.org) And the US share of semiconductor production has fallen from almost 40 percent to just over 10 percent over the last forty years.4Antonia Varas et al, “Government incentives and US Competitiveness in Semiconductor Manufacturing,” BCG. September 16, 2020.
Our private sector and public policy approach to domestic production prioritized low, short-term costs over security, sustainability, and resilience. This was the wake-up call.
Why we need a new approach
Which is why, as we navigate out of this pandemic, and through this uniquely strong economic recovery, the Biden administration is putting rebuilding that resilience—with a focus on creating good paying jobs for American workers—at the core of our Build Back Better agenda. And it is why, today, I am excited to lay out our vision for a twenty-first century American industrial strategy—a strategy to strengthen our supply chains and rebuild our industrial base, across sectors, technologies, and regions.
It is worth noting at the outset that a national, industrial strategy is neither novel or new. In the early nineteenth century, “the American System” described the set of federal policies designed to grow our early nation’s nascent infrastructure and industrial base at a time when our nation’s economy was driven by agriculture. These policies, including subsidies for transportation and the creation of a national bank, grew the US economy in a way that benefited diverse regions of the US. In the twentieth century the federal government again made major strategic investments after World War II, developing emerging technologies and industries such as microelectronics and biotechnology through federal purchasing, public research, and public-private partnerships. Strong unions in the mid-twentieth century ensured more of the gains of economic growth were broadly shared5Lawrence Mishel, “The enormous impact of eroded collective bargaining on wages,” Economic Policy Institute. April 8, 2021.—though many families of color were still excluded.
At the same time, today’s global economic environment is very different from that of the past: The pace of technological change—the idea of Moore’s law for everything—is upending production processes, transforming supply chains and transforming the modern workplace and meaning of work. The pace of the climate crisis is accelerating—threatening to transform economies, migration patterns, and supply chains. Persistent inequality in the US is slowing economic growth and risks fracturing the democratic stability upon which our economic success depends.
And the approach of our competitors and allies has changed. We should be clear-eyed that the idea of an open, free-market global economy ignores the reality that China and other countries are playing by a different set of rules. Strategic public investment to shelter and grow champion industries is a reality of the twenty-first century economy. We cannot ignore or wish this away.
That’s why we need a new strategy. An industrial strategy for the second quarter of the twenty-first century. One that draws from the best lessons of the past, but leans into the challenges of the future. This strategy is built on five core pillars: supply chain resilience, targeted public investment, public procurement, climate resilience, and equity.
Supply chain resilience
First, the pandemic made clear that resilient supply chains must be at the center of a twenty-first century industrial strategy. In our first month in office, we launched an all-of-government effort to assess supply chain resilience. Earlier this month, we released the results of our one-hundred-day supply chain sprint.
The key takeaway—we need a new, broader toolkit:
We need to leverage the Defense Production Act authority in new ways—like investing in advanced pharmaceutical manufacturing technologies. We need to be tougher in tying innovation produced in the US with government funding to domestic manufacturing and employment at home by American workers. We need to make strategic investments to build domestic supply chain capacity, like computer chips. The bipartisan USICA would invest fifty billion dollars in domestic semiconductor research and manufacturing.
And we need to work with allies and partners. It is neither feasible or advisable for us to re-shore all supply chains; it is essential that we form partnerships with our allies that promote more stable access to key inputs while improving environmental sustainability and workers’ rights.
In all of this, we will need new models of public-private collaboration. The public sector cannot discern the right points of intervention on its own, and the private sector is struggling to manage through rapidly changing demand for products, supply chains with multiple choke points, and increasing demand in a highly concentrated market. As economists have pointed out, coordination between the public and private sector is critical to solving for information asymmetries and getting to the right investment outcomes.6Dani Rodrik, “Industrial Policy for the 21st Century,” November 2004. That’s the problem we’re trying to solve for. Coordination, though, can quickly become capture and corruption. That is why this strategy goes hand-in-hand with the administration’s strong commitment to democratic accountability and transparency.
Targeted public investment
Second, there is a compelling and urgent economic need to make a one-time capital investment in this country today.
This goal is to strengthen the public systems that connect manufacturing, researchers, workers, and small businesses. Public investment in roads, bridges, ports, airports, transit, and rail; universal access to affordable broadband; a modernized power grid; and new school and child care facilities that allow parents to work.
We’ve proposed the largest civilian investment in public R&D on record—$180 billion—as well as a $100 billion investment in America’s workforce, including a targeted, sectoral-based approach to workforce development. The economic logic for public investment is straightforward. Markets—on their own—will not make investments in the technologies, innovations, and infrastructure that would benefit an entire industry or sector. When the benefits of innovation are broadly shared, no one firm has an incentive to invest in the kind of game-changing technologies that foster long-term economic competitiveness at the industry level. These are not your classic market failures where government passively responds. These failures require a different role for government, one where public R&D lays a foundation for breakthrough technologies, and government pulls forward the deployment and dispersion of innovation.7Mariana Mazzucato, Mission Economy: A Moonshot Guide to Changing Capitalism. March 2021.
The government has a bunch of tools in this toolbox. Public R&D lays the foundation for breakthrough technologies that can reshape industries or create whole new ones. Yet, the United States has fallen to 9th in the world in terms of public and private R&D investments as a percentage of GDP (about 2.9 percent in 2018).8NAS (National Academies of Sciences, Engineering, and Medicine). 2021. Accelerating Decarbonization of the U.S. Energy System. Washington: National Academies Press. More urgently, the public R&D share of US GDP has fallen from 2 percent in 1964—at its peak—to 0.7 percent today.
Public capital—combined with regulation and institutions—can help crowd in private sector investment,9Mariana Mazzucato and Josh Ryan-Collins, “Putting value creation back into ‘public value’: from market-fixing to market-shaping,” UCL Institute for Innovation and Public Purpose. Working Paper. May 29, 2019. de-risking investment in critical growth opportunities that are critical to the national interest. China has already realized the importance of public capital in building the manufacturing base. The Chinese Development Bank committed sixty-two billion dollars in 2021 lending to support strategic emerging industries and advanced manufacturing—investing in both upstream and downstream firms.10Celia Chen, “US-China tech war: Beijing’s main policy lender pledges US$62 billion to fund tech innovation,” South China Morning Post. March 4, 2021.
And manufacturing has a high return on investment. It punches above its weight, representing 60 percent of US exports, and 70 percent of business R&D spending. It strengthens our “industrial commons” by creating positive spillovers for workers, firms, and communities.11Gary Pisano and Willy Shih. Producing Prosperity: Why America Needs a Manufacturing Renaissance, Harvard Business Press. September 2012.
Several private sector analyses, including from Moody’s and Goldman Sachs, show that the investments the president is proposing will raise the long-term productive capacity of this country by 0.5 percent and a cumulative increase in GDP of more than $4.5 trillion over the next decade. These are high-value investments that we know have worked and will work. And when paired with high road production strategies can deliver the good jobs Americans workers and their families need and deserve.
Third, we need to reimagine public procurement policy. The US federal government is one of the largest buyers in the world—spending over six hundred billion dollars in contracts annually.12FY2021 obligated amount for contractual services and supplies. USASpending.gov. Government Spending Explorer | USAspending We believe the government should buy more, strategically, shaping markets to align with our industrial strategy goals. This emphasis on procurement is a unique through line between both President Biden’s candidacy and presidency.
Federal support for the deployment and dispersion of technologies addresses innovation’s demand-side problem, where entrepreneurs—uncertain of the time horizon for profitability—have insufficient incentive to undertake aggressive product development.13Hausman and Dani Rodrik, “Economic Development as Self-discovery”, Journal of Development Economics 72(2): 603‒33. 2003. 14Antonio Andreoni and Ha-Joon Chang, “Industrial Policy in the 21st Century,” Development and Change. January 11, 2020.
While leveraging the full force and magnitude of federal procurement policy is new, we already know first-hand that federal purchasing can help public-private coordination to achieve momentous goals in innovation. Using outcome-driven models—like prizes and challenges and multi-stage competitions—NASA has managed to partner with the private sector to meet mission needs, while also pulling forward widespread advancements in technology.15Jason Crusan et al., “Outcome-Driven Open Innovation at NASA,” Space Policy. August 2015; See also: “Innovation, Investment, and Inclusion: Accelerating the Energy Transition and Creating Good Jobs,” Council of Economic Advisors. April 23, 2021. What’s been achieved in this realm is just a glimpse of the power that a comprehensive procurement policy brings.
That is why we have proposed an almost fifty-billion-dollar investment to pull forward demand for new clean energy products, and his Buy American initiative will ensure procurement supports US manufacturing.
Fourth, we need an industrial base that drives our effort to address the existential threat of climate change, which requires a fundamental shift in how we produce—how we power the economy. The particular characteristics of the climate challenge—its scale, its complexity, its urgency—makes it distinctly apt for an economic policy strategy where government helps unleash the power and ingenuity of the private markets and rapidly mobilizes resources toward decarbonization.16Dani Rodrik, “Green industrial policy,” Oxford Review of Economic Policy. 2014.
Our twenty-first century approach to rebuilding industrial strength puts investments in decarbonization, power, and transportation sectors at the forefront, supporting research, development, and deployment in these sectors as well as supply-side production incentives that drive private sector growth and increase US market share.
We’re calling Congress to invest in incentives to deploy clean energy projects more quickly. And, we’re calling for investments in retooling existing auto plants to take advantage of the rapidly growing EV market while also making investments that capture more of the upstream supply chain, like lithium batteries.
But the global nature of climate change also provides an opportunity for US industry to help others meet their climate targets. We were once the arsenal of democracy for the world during World War II. We can again be an arsenal for the world dealing with climate change. Through targeted investments, we can make sure that when countries around the world install new solar panels, wind turbines, advanced batteries, or other energy efficiency technologies, that they source those products from US factories.
Finally, equity must run through everything we do. We must learn from our historical mistakes. Prior economic transformations have not brought everyone along, to the detriment of economic growth and innovation.17Raj Chetty et al., “Who becomes an inventor in America? The importance of exposure to innovation,” The Equality of Opportunity Project. November, 2018. For example, the racial wealth gap is projected to cost the US economy between $1 trillion and $1.5 trillion in lost consumption and investment by 2028.18Nick Noel et al., “The economic impact of closing the racial wealth gap,” McKinsey. August 13, 2019.
By doing it differently this time, we will enhance our economic competitiveness. By prioritizing racial and gender equity we can reduce the yawning gaps in wealth and opportunity and unleash stronger growth. By investing in all of America—particularly in those regions that have suffered from decades of deindustrialization—we can avoid further geographic entrenchment and polarization.
From investing in HBCUs and MSIs in our R&D to investments in regional manufacturing investments like technology hubs, which align investments in R&D, education, training, and infrastructure to create more competitive businesses, this is what it takes to build an economy from the bottom up and the middle out. As the president said in Tulsa, and as he reemphasized last weekend, “Great nations don’t ignore their most painful moments.” Instead, by remembering them “we begin to heal and grow stronger.”
So, this is our five-pillar strategy.
To conclude, I want to make a final point: this strategy—and indeed all of President Biden’s economic agenda—rests on the belief that American capitalism and American democracy can deliver for our people and our future. At this moment, the stakes could not be higher. We need to demonstrate that American capitalism can work to benefit everyone, not just shareholders. That smart public investment can help unleash innovation and deliver strong, resilient, inclusive growth.
And we must show that our democratic system of government can serve working people—better than any other form of government. We are off to a strong start—but we have a lot of work to do. And no time to lose. As the president has said, years from now our children will look back at this time as the moment when America had the chance to win the twenty-first century. Let’s seize this moment, together.
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