1 00:00:02,720 --> 00:00:17,320 Speaker 1: Bloomberg Audio Studios, Podcasts, Radio News. 2 00:00:18,760 --> 00:00:22,239 Speaker 2: Hello and welcome to another episode of the odd Locks podcast. 3 00:00:22,320 --> 00:00:24,639 Speaker 3: I'm Joe Wisenthal and I'm Tracy Alloway. 4 00:00:25,120 --> 00:00:27,240 Speaker 2: Tracy, you know, we obviously talk a lot on the 5 00:00:27,280 --> 00:00:31,000 Speaker 2: show about US industrial policy and these various investments we're 6 00:00:31,000 --> 00:00:34,360 Speaker 2: making in things like chips, clean energy, batteries, and so forth. 7 00:00:34,520 --> 00:00:36,479 Speaker 2: Did you see there were some actually good news on 8 00:00:36,560 --> 00:00:37,839 Speaker 2: the chips front recently? 9 00:00:37,960 --> 00:00:38,599 Speaker 4: Oh? What was that? 10 00:00:39,120 --> 00:00:44,199 Speaker 2: The new fab that TSMC is building in Arizona is 11 00:00:44,240 --> 00:00:49,080 Speaker 2: getting as good yields as their existing fabs in Taiwan, 12 00:00:49,640 --> 00:00:54,120 Speaker 2: at least in theory. It looks like Americans are capable 13 00:00:54,200 --> 00:00:56,200 Speaker 2: of building as well as anyone else in the world, 14 00:00:56,280 --> 00:00:57,080 Speaker 2: at least in theory. 15 00:00:57,480 --> 00:01:02,080 Speaker 3: That is fab Joe, Oh, that's fabulus less fab productivity news. 16 00:01:02,280 --> 00:01:04,200 Speaker 2: Have I told you, by the way, since you joked 17 00:01:04,240 --> 00:01:07,479 Speaker 2: about that, I really think fab apostrophe less, like fab 18 00:01:07,600 --> 00:01:10,320 Speaker 2: less semiconductor would be a really good name. 19 00:01:10,319 --> 00:01:12,400 Speaker 3: For Oh yeah, I think I think you've pitched that 20 00:01:12,440 --> 00:01:14,720 Speaker 3: fabless so far. I agree with you that'd be good. 21 00:01:15,080 --> 00:01:18,440 Speaker 2: But okay, so sitting aside that one plant, which hasn't 22 00:01:18,480 --> 00:01:21,480 Speaker 2: actually opened yet, I believe I think that it's scheduled 23 00:01:21,520 --> 00:01:24,520 Speaker 2: to open in twenty twenty five. Setting aside good signs 24 00:01:24,560 --> 00:01:29,760 Speaker 2: of positive yields there, like, I remain anxious about whether 25 00:01:29,840 --> 00:01:32,640 Speaker 2: any of this is going to ultimately work, or whether 26 00:01:32,680 --> 00:01:34,800 Speaker 2: we're going to have a lot of billions and billion 27 00:01:34,840 --> 00:01:39,720 Speaker 2: dollars spend and either unproductive plants or plants producing stuff 28 00:01:39,720 --> 00:01:42,680 Speaker 2: that there really isn't in demand market for. Like, if 29 00:01:42,720 --> 00:01:45,119 Speaker 2: it all turned out to be a waste of tens 30 00:01:45,200 --> 00:01:47,000 Speaker 2: and tens of billions of dollars, let's just say, I 31 00:01:47,000 --> 00:01:47,840 Speaker 2: wouldn't be shocked. 32 00:01:48,200 --> 00:01:51,080 Speaker 3: Well, I don't think you're alone in your concern. I 33 00:01:51,080 --> 00:01:55,160 Speaker 3: think there is a wider recognition nowadays that there are 34 00:01:55,480 --> 00:01:58,800 Speaker 3: areas of the economy or certain businesses that might be 35 00:01:58,840 --> 00:02:03,800 Speaker 3: strategically important where not enough capital is flowing into through 36 00:02:03,840 --> 00:02:06,640 Speaker 3: the private market, and so maybe the government wants to 37 00:02:06,680 --> 00:02:09,440 Speaker 3: do something to build up those industries. It feels like 38 00:02:09,600 --> 00:02:13,359 Speaker 3: in general there is more of a recognition or perhaps 39 00:02:13,400 --> 00:02:17,560 Speaker 3: acceptance of that idea. But as you say, there remains 40 00:02:17,600 --> 00:02:21,320 Speaker 3: some very very big questions about the specific design of 41 00:02:21,400 --> 00:02:24,960 Speaker 3: industrial policy and the idea of well, you know, maybe 42 00:02:25,000 --> 00:02:27,800 Speaker 3: there's good and bad industrial policy. Maybe if you throw 43 00:02:27,880 --> 00:02:31,359 Speaker 3: money at a particular industry through subsidies or whatever. Then 44 00:02:31,400 --> 00:02:35,400 Speaker 3: all you're doing is building up over capacity that eventually 45 00:02:35,680 --> 00:02:38,080 Speaker 3: is not going to be able to compete on the 46 00:02:38,080 --> 00:02:41,520 Speaker 3: global stage. And I think those are very valid critiques, 47 00:02:41,520 --> 00:02:44,320 Speaker 3: and we have seen a number of examples throughout history 48 00:02:44,800 --> 00:02:49,240 Speaker 3: of industrial policy that hasn't quite worked out as intended totally. 49 00:02:49,280 --> 00:02:52,040 Speaker 2: And you know, I think there's a few other dimensions 50 00:02:52,080 --> 00:02:54,400 Speaker 2: here that I think are important. So one is when 51 00:02:54,440 --> 00:02:58,480 Speaker 2: we talk about industrial policy throughout history or development strategy 52 00:02:58,600 --> 00:03:01,320 Speaker 2: for a lot of countries, it's like a a lot 53 00:03:01,400 --> 00:03:04,639 Speaker 2: of it has failed. Countries have tried to industrialize or 54 00:03:04,960 --> 00:03:08,200 Speaker 2: rise to some level where they have competitive manufactured goods 55 00:03:08,639 --> 00:03:11,800 Speaker 2: without working out. Two is the fact that one thing 56 00:03:11,840 --> 00:03:14,119 Speaker 2: that's unique is we're not a poor country, and we're 57 00:03:14,120 --> 00:03:16,960 Speaker 2: not a country that's like trying to rise per se 58 00:03:17,040 --> 00:03:19,360 Speaker 2: in the development ladder. So a lot of theory of 59 00:03:19,400 --> 00:03:23,200 Speaker 2: industrial policy is sort of talking about countries, many of 60 00:03:23,240 --> 00:03:25,720 Speaker 2: them in East Asia that have succeeded or others that 61 00:03:25,840 --> 00:03:28,480 Speaker 2: have failed. But those were countries that were when they 62 00:03:28,520 --> 00:03:31,120 Speaker 2: started quite poor relative to us, and we're rich, and 63 00:03:31,200 --> 00:03:34,800 Speaker 2: a lot of our anxiety is about specific sectors rather 64 00:03:34,880 --> 00:03:37,440 Speaker 2: than the sort of wealth of the economy. As a whole, 65 00:03:37,800 --> 00:03:39,920 Speaker 2: So there is a lot to dive into on them. 66 00:03:39,960 --> 00:03:42,200 Speaker 3: Well, the other difference that comes up a lot is 67 00:03:42,400 --> 00:03:45,920 Speaker 3: political systems. Yes, right, so we're a democracy and a 68 00:03:45,960 --> 00:03:50,240 Speaker 3: lot of countries that have to some extent successfully democratized. 69 00:03:50,480 --> 00:03:52,680 Speaker 3: You often hear the argument that they were only able 70 00:03:52,720 --> 00:03:54,920 Speaker 3: to do it because they either had a command economy, 71 00:03:55,200 --> 00:03:59,960 Speaker 3: or perhaps they had authoritarian leaning regimes and things like that. 72 00:04:00,280 --> 00:04:04,320 Speaker 3: So I think the design of industrial policy, its success 73 00:04:04,480 --> 00:04:07,400 Speaker 3: its failure, is definitely a worthy topic totally. 74 00:04:07,400 --> 00:04:09,360 Speaker 2: Well, there's a lot to dive in on who we 75 00:04:09,360 --> 00:04:11,360 Speaker 2: should get right into it. We really do have the 76 00:04:11,400 --> 00:04:14,280 Speaker 2: perfect guest today. We're going to be speaking with Vivig Chibber. 77 00:04:14,320 --> 00:04:17,240 Speaker 2: He is a sociology professor at NYU and he's written 78 00:04:17,360 --> 00:04:21,960 Speaker 2: a lot on development and industrial policy, among many other things. 79 00:04:22,080 --> 00:04:24,440 Speaker 2: So thank you so much for coming in, Thanks. 80 00:04:24,279 --> 00:04:24,800 Speaker 4: For having me. 81 00:04:24,960 --> 00:04:27,200 Speaker 2: Why don't we start with what I guess would be 82 00:04:27,320 --> 00:04:29,960 Speaker 2: a definitional question that I'm not sure if we've ever 83 00:04:30,040 --> 00:04:34,120 Speaker 2: actually asked anyone on the show, but what is industrial policy? 84 00:04:34,120 --> 00:04:36,160 Speaker 2: We talk about it all the time, and I realized, 85 00:04:36,200 --> 00:04:37,960 Speaker 2: like I actually don't know what that term means. 86 00:04:38,279 --> 00:04:40,919 Speaker 4: Yeah, it's actually an important question because a lot of 87 00:04:40,960 --> 00:04:46,400 Speaker 4: times when people are debating industrial policy, they assimilated into 88 00:04:46,400 --> 00:04:50,000 Speaker 4: a wider set of phenomena, a wider set of state actions, 89 00:04:50,040 --> 00:04:53,120 Speaker 4: which really makes it hard to have a kind of 90 00:04:53,160 --> 00:04:57,680 Speaker 4: a productive discussion around it. So industrial policy is a 91 00:04:57,680 --> 00:05:02,080 Speaker 4: particular kind of state intervenetion in the economy. That means 92 00:05:02,120 --> 00:05:04,560 Speaker 4: you can have forms of state intervention. States are involved 93 00:05:04,600 --> 00:05:08,360 Speaker 4: in economies all the time. They affect its sectoral balance, 94 00:05:08,400 --> 00:05:11,000 Speaker 4: they affect its place in the global economy, the effect 95 00:05:11,040 --> 00:05:16,000 Speaker 4: trade flows without necessarily, however, being forms of industrial policy. 96 00:05:16,800 --> 00:05:20,520 Speaker 4: So industrial policy is a specific sort of state intervention, 97 00:05:20,560 --> 00:05:23,600 Speaker 4: and it shouldn't be confused with state intervention per se. Okay, 98 00:05:23,640 --> 00:05:26,040 Speaker 4: all right, so what's specific about it? I mean, there 99 00:05:26,080 --> 00:05:30,080 Speaker 4: isn't a kind of a consensus, a universal consensus around 100 00:05:30,080 --> 00:05:32,080 Speaker 4: what we mean when we use the term, but by 101 00:05:32,120 --> 00:05:34,560 Speaker 4: and large what people mean by it, and they're sort 102 00:05:34,600 --> 00:05:38,480 Speaker 4: of an agreement, is that when states intervened to bolster 103 00:05:39,160 --> 00:05:44,159 Speaker 4: particular sectors of the manufacturing base of the economy rather 104 00:05:44,200 --> 00:05:49,279 Speaker 4: than affecting the general structure, the general the proportion between 105 00:05:49,279 --> 00:05:52,200 Speaker 4: manufacturing and agriculture and such things. So the term goes 106 00:05:52,240 --> 00:05:55,560 Speaker 4: when you're selecting winners, when you say that sector or 107 00:05:55,600 --> 00:05:59,479 Speaker 4: that plant or that area of manufacturing should be supported 108 00:06:00,000 --> 00:06:03,719 Speaker 4: and change. Therefore the balance of investment flows from one 109 00:06:03,760 --> 00:06:04,560 Speaker 4: sector to the other. 110 00:06:05,360 --> 00:06:09,000 Speaker 3: When you think about successful industrial policy, give us some 111 00:06:09,080 --> 00:06:13,119 Speaker 3: examples of a particular country or economy that comes to mind. 112 00:06:14,120 --> 00:06:20,200 Speaker 4: The kind of the universally accepted examples are Japan, South Korea, Taiwan, 113 00:06:20,720 --> 00:06:25,200 Speaker 4: and interestingly, in Europe among people who study European political economy, France, 114 00:06:25,440 --> 00:06:29,520 Speaker 4: from say the early years after Second World War into 115 00:06:29,560 --> 00:06:33,560 Speaker 4: the late sixties is another example that people take up 116 00:06:33,600 --> 00:06:35,320 Speaker 4: as successful industrial policy. 117 00:06:36,440 --> 00:06:38,640 Speaker 2: Say more about what that looks like. So we look 118 00:06:38,680 --> 00:06:41,360 Speaker 2: back at some of these East Asian countries or France, 119 00:06:41,360 --> 00:06:46,240 Speaker 2: where we say, okay, they did successful industrial policy. I mean, 120 00:06:46,279 --> 00:06:48,599 Speaker 2: I'm sure we could talk for hours and hours just 121 00:06:48,640 --> 00:06:50,920 Speaker 2: about any one of these specifics. But when you say, 122 00:06:51,040 --> 00:06:54,320 Speaker 2: or when people generally say, this is what success looks like, 123 00:06:54,480 --> 00:06:55,400 Speaker 2: give us the contours. 124 00:06:55,440 --> 00:06:58,640 Speaker 4: All right. So industrial policy, if you know a little 125 00:06:58,640 --> 00:07:02,159 Speaker 4: bit of economics, it's kind of a step away from 126 00:07:02,240 --> 00:07:06,680 Speaker 4: and an explicit repudiation of what's called comparative advantage. So 127 00:07:06,800 --> 00:07:10,360 Speaker 4: traditional economic theories said what country should do is not 128 00:07:10,400 --> 00:07:12,960 Speaker 4: what they do better than other people. It's what they 129 00:07:13,000 --> 00:07:16,080 Speaker 4: do best in the range of activities that they can manage. 130 00:07:16,480 --> 00:07:19,920 Speaker 4: So you may be not very good at producing textiles 131 00:07:20,120 --> 00:07:24,400 Speaker 4: if you have Korea compared to say Japan. But if 132 00:07:24,440 --> 00:07:27,080 Speaker 4: producing textiles is the best you can do, then you 133 00:07:27,120 --> 00:07:29,960 Speaker 4: produce the textiles, right. And how do you find out 134 00:07:30,000 --> 00:07:32,080 Speaker 4: what you're best at, Well, you let the market tell you. 135 00:07:32,080 --> 00:07:34,640 Speaker 4: You let the market tell you, and you discovered that 136 00:07:34,760 --> 00:07:39,240 Speaker 4: by opening up your economy and see where rational investors 137 00:07:39,400 --> 00:07:41,760 Speaker 4: are taking their money. Because they want to make profits, 138 00:07:41,800 --> 00:07:44,120 Speaker 4: they'll take the money wherever they think they can do 139 00:07:44,160 --> 00:07:47,160 Speaker 4: best with that money. All right. So the idea then 140 00:07:47,320 --> 00:07:52,240 Speaker 4: was countries will choose those specializations in which they have 141 00:07:52,320 --> 00:07:54,480 Speaker 4: the factor endowment. That makes sense. So if you're a 142 00:07:54,480 --> 00:07:57,560 Speaker 4: country that's poor means you got not very much capital, 143 00:07:57,720 --> 00:07:59,120 Speaker 4: but you've got a lot of people, You've got a 144 00:07:59,160 --> 00:08:02,760 Speaker 4: lot of land, so you specialize with those factors that 145 00:08:02,840 --> 00:08:04,520 Speaker 4: you have a lot of, which is land and people. 146 00:08:05,320 --> 00:08:07,600 Speaker 4: What does that mean concretely, it means poor country shirts 147 00:08:07,600 --> 00:08:11,440 Speaker 4: specialize in labor intensive industries or agriculture. Now, from the 148 00:08:11,480 --> 00:08:13,120 Speaker 4: standpoint of the poor countries, they looked at this and 149 00:08:13,160 --> 00:08:16,280 Speaker 4: they said, well, that means basically we're being asked to 150 00:08:16,320 --> 00:08:20,800 Speaker 4: lock ourselves into the least productive, least profitable, and those 151 00:08:20,840 --> 00:08:24,200 Speaker 4: sectors that are the least propitious for growth, because agriculture 152 00:08:24,200 --> 00:08:27,320 Speaker 4: doesn't generate high growth, nor does labor intensive industry. So 153 00:08:27,360 --> 00:08:29,920 Speaker 4: they said, essentially, what this looks like is a rationalization 154 00:08:30,320 --> 00:08:33,120 Speaker 4: for rich countries to hoard and keep to themselves all 155 00:08:33,160 --> 00:08:35,400 Speaker 4: the best sectors, and we get the scraps. 156 00:08:36,240 --> 00:08:38,199 Speaker 3: So commodities exploitations exactly. 157 00:08:38,240 --> 00:08:43,319 Speaker 4: Commodity exploitation, oil, cheap clothes, corn wheat, that sort of thing, 158 00:08:44,040 --> 00:08:46,360 Speaker 4: And that's what was associated with being poor in the 159 00:08:46,360 --> 00:08:49,560 Speaker 4: global economy. All right, so what do you do? Starting 160 00:08:49,559 --> 00:08:52,160 Speaker 4: in the nineteen forties, what some countries started doing was 161 00:08:52,200 --> 00:08:54,640 Speaker 4: to say, we're going to try to move up the 162 00:08:54,760 --> 00:08:58,280 Speaker 4: value chain. Instead of just making cheap shirts, cheap shoes, 163 00:08:58,720 --> 00:09:00,360 Speaker 4: leather goods, what we're going to try to do is 164 00:09:00,400 --> 00:09:04,880 Speaker 4: move into high end consumer goods automobiles, even capital goods 165 00:09:04,880 --> 00:09:07,800 Speaker 4: like steel, heavy chemical. But how do you do that? 166 00:09:08,520 --> 00:09:10,920 Speaker 4: The thing is, in those economies, if you try to 167 00:09:10,920 --> 00:09:13,400 Speaker 4: move into auto and you're a private investor, you'll get 168 00:09:13,440 --> 00:09:15,200 Speaker 4: clawbird because you don't know how to do it. You 169 00:09:15,200 --> 00:09:16,840 Speaker 4: don't know how to make a car. Ford's making them 170 00:09:16,880 --> 00:09:18,360 Speaker 4: GM's making them, and they're making them a lot better 171 00:09:18,360 --> 00:09:20,520 Speaker 4: than you. If you try to make your stupid little 172 00:09:20,520 --> 00:09:22,800 Speaker 4: cars and you throw them to the global economy and 173 00:09:22,880 --> 00:09:24,920 Speaker 4: no one's going to buy them, and if you try 174 00:09:24,920 --> 00:09:27,760 Speaker 4: to do it by first producing them for your domestic market, 175 00:09:28,040 --> 00:09:30,200 Speaker 4: why would consumers buy your cars when they can get 176 00:09:30,400 --> 00:09:33,319 Speaker 4: top of the line GM cars. We're talking about the 177 00:09:33,360 --> 00:09:36,960 Speaker 4: nineteen fifties, yeaes, the US auto economy dominates everything. So 178 00:09:37,040 --> 00:09:38,880 Speaker 4: they said, if we're gonna do this, we need to 179 00:09:38,880 --> 00:09:41,040 Speaker 4: do two things. First of all, we need to open 180 00:09:41,120 --> 00:09:43,240 Speaker 4: up a space in the domestic economy for our own 181 00:09:43,760 --> 00:09:48,199 Speaker 4: manufacturing firms by protecting them. That's teriffs. We'd protect them 182 00:09:48,440 --> 00:09:52,960 Speaker 4: so that foreign goods become more expensive and therefore our 183 00:09:53,040 --> 00:09:56,319 Speaker 4: goods have some breathing space, because when you start making 184 00:09:56,320 --> 00:09:57,920 Speaker 4: a good for the first time, it's going to cost 185 00:09:57,960 --> 00:10:00,440 Speaker 4: a little bit more to the consumer. Second thing we 186 00:10:00,480 --> 00:10:04,319 Speaker 4: do is as governments, we make it attractive for investors 187 00:10:04,400 --> 00:10:07,959 Speaker 4: to move into these lines because they're high risk. So 188 00:10:08,320 --> 00:10:11,640 Speaker 4: what East Asian countries started to do was they did 189 00:10:11,640 --> 00:10:15,000 Speaker 4: this twofold thing where they had what's called import substitution, 190 00:10:15,320 --> 00:10:19,160 Speaker 4: which means you're trying to substitute for imports your domestic goods. 191 00:10:19,760 --> 00:10:22,360 Speaker 4: That means tariffs and protection. And then you try to 192 00:10:22,520 --> 00:10:27,120 Speaker 4: plow money and incentives to domestic producers to promise them 193 00:10:27,240 --> 00:10:30,280 Speaker 4: essentially you won't take a loss. And now what you've 194 00:10:30,280 --> 00:10:33,960 Speaker 4: got is countries instead of just specializing in cheap clothes 195 00:10:33,960 --> 00:10:36,440 Speaker 4: and shoes and things like that, they start producing more 196 00:10:36,520 --> 00:10:40,440 Speaker 4: high end goods. And these are goods that produce more profits, 197 00:10:40,480 --> 00:10:43,920 Speaker 4: have higher rates of growth, and propel that country into 198 00:10:44,000 --> 00:10:47,120 Speaker 4: the ranks of first middle income countries and then later 199 00:10:47,240 --> 00:10:50,840 Speaker 4: high income countries on the back of a dynamic and 200 00:10:51,040 --> 00:10:54,520 Speaker 4: high end manufacturing sector. That's basically what it amounts to. 201 00:10:55,120 --> 00:10:57,880 Speaker 3: So how do you And I alluded to this in 202 00:10:57,920 --> 00:11:01,119 Speaker 3: the intro, but I think a traditional critic of industrial 203 00:11:01,160 --> 00:11:07,319 Speaker 3: policy is that by subsidizing certain industries and maybe encouraging 204 00:11:07,400 --> 00:11:12,920 Speaker 3: capital to pour into them, you perhaps sacrifice competitiveness in 205 00:11:12,960 --> 00:11:16,079 Speaker 3: one way or another. And so the worry is that, well, 206 00:11:16,360 --> 00:11:20,280 Speaker 3: when the subsidies eventually end, or when companies are asked 207 00:11:20,320 --> 00:11:23,320 Speaker 3: to stand on their own two feet and compete with 208 00:11:23,520 --> 00:11:27,480 Speaker 3: global juggernauts so forward or whoever, they won't be able 209 00:11:27,520 --> 00:11:30,320 Speaker 3: to do that. How do you balance I guess the 210 00:11:30,320 --> 00:11:35,280 Speaker 3: need for discipline with the desire for successful industrial policy. 211 00:11:36,120 --> 00:11:39,679 Speaker 4: Well, there's the general principle of what you are to do, 212 00:11:40,120 --> 00:11:42,360 Speaker 4: and then there's the tricky part of can you actually 213 00:11:42,360 --> 00:11:44,880 Speaker 4: do it. So the problem, as you're saying, is that 214 00:11:45,000 --> 00:11:46,800 Speaker 4: you hit it on the head. The problem is this, 215 00:11:47,160 --> 00:11:51,440 Speaker 4: it's built into the model that there's a strong tendency 216 00:11:51,480 --> 00:11:54,440 Speaker 4: towards failure. Now where does this come from. Remember, what 217 00:11:54,480 --> 00:11:56,520 Speaker 4: you're trying to do is figure out a way of 218 00:11:56,559 --> 00:11:59,600 Speaker 4: making your economy more dynamic, more productive, so that you 219 00:11:59,600 --> 00:12:02,600 Speaker 4: can move up in the global hierarchy of nations. Okay, 220 00:12:02,960 --> 00:12:06,280 Speaker 4: all right, So you're doing that by essentially insulating your 221 00:12:06,520 --> 00:12:11,960 Speaker 4: domestic producers from competition and giving them lots of free money. Now, 222 00:12:12,120 --> 00:12:15,240 Speaker 4: this in some ways takes away what is best about 223 00:12:15,240 --> 00:12:18,319 Speaker 4: the market, right, because why do capitalists, why do firms 224 00:12:19,280 --> 00:12:22,360 Speaker 4: worry about productivity? Is that if they don't worry about productivity, 225 00:12:22,520 --> 00:12:24,880 Speaker 4: they're going to go under. Well what is it that 226 00:12:24,880 --> 00:12:27,360 Speaker 4: punishes them. What's the instrument that punishes them if they 227 00:12:27,360 --> 00:12:31,640 Speaker 4: forget about productivity? It's market competition. If you don't play 228 00:12:31,840 --> 00:12:33,640 Speaker 4: the best game you can, you're going to be out 229 00:12:33,640 --> 00:12:35,680 Speaker 4: of the game pretty soon because others are going to outcompete, 230 00:12:35,679 --> 00:12:39,880 Speaker 4: you out sell you. Now, what import substitution industrial policy does, 231 00:12:40,600 --> 00:12:44,920 Speaker 4: in principle is take away that competitive mechanism and substitute 232 00:12:44,960 --> 00:12:48,679 Speaker 4: government oversight for that stuff. Now, the danger there is 233 00:12:48,720 --> 00:12:51,439 Speaker 4: that you're essentially giving people monopolies. They're giving them monopoly 234 00:12:51,480 --> 00:12:54,160 Speaker 4: over certain sectors, insulating them from competition, and you're giving 235 00:12:54,200 --> 00:12:56,440 Speaker 4: them free profits. When they have free profits, why are 236 00:12:56,480 --> 00:12:59,360 Speaker 4: they going to innovate? They have no direct incentive to innovate. 237 00:12:59,760 --> 00:13:03,960 Speaker 4: So there were two possibilities. One is you deploy industrial 238 00:13:04,000 --> 00:13:06,720 Speaker 4: policy and these artificial monopolies, and you end up getting 239 00:13:06,720 --> 00:13:10,520 Speaker 4: a fat cat industrial sector that's gobbling up national resources 240 00:13:10,520 --> 00:13:13,920 Speaker 4: but not delivering a lot in terms of productivity and growth. 241 00:13:14,840 --> 00:13:18,360 Speaker 4: The second possibility is that you give them these free profits, 242 00:13:18,360 --> 00:13:20,559 Speaker 4: but then you also figure out some way to crack 243 00:13:20,600 --> 00:13:24,319 Speaker 4: the whip so that they're forced they're compelled to use 244 00:13:24,320 --> 00:13:28,760 Speaker 4: those profits productively. Now, a lot of countries try everybody 245 00:13:28,840 --> 00:13:31,760 Speaker 4: knew this. This isn't rocket science. Everybody knows every economist knows 246 00:13:31,800 --> 00:13:36,120 Speaker 4: monopolies are bad for growth. So what happened in spite 247 00:13:36,160 --> 00:13:37,839 Speaker 4: of the fact that they knew it in a lot 248 00:13:37,880 --> 00:13:42,400 Speaker 4: of these countries, the monopolies did in fact, lead to 249 00:13:42,480 --> 00:13:47,319 Speaker 4: a lot of low productivity, sloppy, flabby firms that are 250 00:13:47,360 --> 00:13:49,440 Speaker 4: living high off the hog but not doing much with it. 251 00:13:50,480 --> 00:13:53,880 Speaker 4: India was one, Brazil was another. Then there were countries 252 00:13:53,920 --> 00:13:56,600 Speaker 4: where you actually had more abject failures, like the Philippines. 253 00:13:57,480 --> 00:13:59,360 Speaker 4: But then there was a small subset of countries like 254 00:13:59,400 --> 00:14:01,920 Speaker 4: these East Asia ones where they do the same thing 255 00:14:01,920 --> 00:14:04,400 Speaker 4: with monopolies and tariffs and subsidies, but you don't get 256 00:14:04,400 --> 00:14:06,520 Speaker 4: the same outcome. The question is why, and the reason 257 00:14:06,640 --> 00:14:10,360 Speaker 4: is they managed to compliment the subsidies with some kind 258 00:14:10,400 --> 00:14:13,679 Speaker 4: of enforced competitive pressures. Well, how do they do that? 259 00:14:14,120 --> 00:14:15,760 Speaker 4: What they did was to say, Okay, we'll give you 260 00:14:15,800 --> 00:14:19,320 Speaker 4: these subsidies. We'll give you protective from foreign competition at home. 261 00:14:19,800 --> 00:14:22,640 Speaker 4: But in order to keep getting the subsidies year after year, 262 00:14:23,040 --> 00:14:26,160 Speaker 4: investment cycle after investment cycle, you need to show us 263 00:14:26,640 --> 00:14:29,240 Speaker 4: that you're using it productively. How do you show that. 264 00:14:29,400 --> 00:14:32,280 Speaker 4: We want to see you succeed in export markets. Take 265 00:14:32,280 --> 00:14:36,240 Speaker 4: this money, invest it and now don't just produce your 266 00:14:36,480 --> 00:14:38,880 Speaker 4: Hyundai or your Kia for the home markets. We want 267 00:14:38,920 --> 00:14:40,400 Speaker 4: to see you in the toyotas. For the home market, 268 00:14:40,440 --> 00:14:42,000 Speaker 4: we want to see you selling it in the us 269 00:14:42,040 --> 00:14:44,880 Speaker 4: in Europe, which are really really competitive. Either you innovator, 270 00:14:44,880 --> 00:14:49,000 Speaker 4: you die in those areas. So now you had an 271 00:14:49,120 --> 00:14:53,200 Speaker 4: unambiguous metric by which you could say whether or not 272 00:14:53,280 --> 00:14:55,960 Speaker 4: you're succeeding in picking these winners and whether or not 273 00:14:55,960 --> 00:14:57,520 Speaker 4: they're in fact winners. And it turned out some of 274 00:14:57,520 --> 00:14:59,000 Speaker 4: them failed, but others succeeded. 275 00:15:14,440 --> 00:15:19,440 Speaker 2: The intuitions of what you say sound incredibly obvious and clear. 276 00:15:20,120 --> 00:15:22,120 Speaker 2: I get the idea of, like, okay, you need to 277 00:15:22,160 --> 00:15:25,320 Speaker 2: clear some space in the domestic market so that companies 278 00:15:25,360 --> 00:15:27,640 Speaker 2: have a chance to get off the ground and breathe 279 00:15:28,040 --> 00:15:31,760 Speaker 2: that giving companies free money is only going to accomplish 280 00:15:31,840 --> 00:15:35,920 Speaker 2: your goals if companies use the money to invest and 281 00:15:35,960 --> 00:15:39,240 Speaker 2: improve their productivity and innovate, et cetera. And that the 282 00:15:39,400 --> 00:15:43,040 Speaker 2: test for whether they're improving and innovating and creating competitive 283 00:15:43,080 --> 00:15:46,760 Speaker 2: products are those foreign markets in which the local country 284 00:15:46,760 --> 00:15:49,480 Speaker 2: has no control and therefore you're just on your own 285 00:15:49,520 --> 00:15:52,480 Speaker 2: and you're free competing against the forwards and et cetera 286 00:15:52,520 --> 00:15:56,040 Speaker 2: of the world. A. Why didn't every country go down 287 00:15:56,320 --> 00:15:59,240 Speaker 2: that route? And sort of what has to happen I 288 00:15:59,280 --> 00:16:04,560 Speaker 2: guess politically such that the capitalists who build these factories 289 00:16:05,040 --> 00:16:08,480 Speaker 2: accept that premise and don't just sort of try to 290 00:16:08,520 --> 00:16:11,800 Speaker 2: scroll away the money without ever having competed internationally. 291 00:16:11,960 --> 00:16:15,040 Speaker 4: Yeah, perfect questions, and the answer to both is actually 292 00:16:15,040 --> 00:16:19,160 Speaker 4: the same answer. Okay, The dilemma was essentially a political dilemma, 293 00:16:19,240 --> 00:16:21,560 Speaker 4: not a technical one, and not an economic one. And 294 00:16:21,600 --> 00:16:25,200 Speaker 4: this is where the critics of import substitution kind of 295 00:16:25,240 --> 00:16:27,720 Speaker 4: kept scratching their heads and saying, look, we know that 296 00:16:27,800 --> 00:16:30,720 Speaker 4: the answer to how to make this a successful policy 297 00:16:31,480 --> 00:16:35,680 Speaker 4: is to discipline these firms that are getting all this money, 298 00:16:35,680 --> 00:16:38,840 Speaker 4: to discipline them with competitive pressures. So the best way 299 00:16:38,880 --> 00:16:41,400 Speaker 4: to do that is through export promotion. And by the 300 00:16:41,520 --> 00:16:45,960 Speaker 4: late sixties early seventies, you saw the World Bank, the IMF, 301 00:16:46,000 --> 00:16:48,440 Speaker 4: all both of what's called the Bretton Woods institutions, but 302 00:16:48,680 --> 00:16:52,040 Speaker 4: also the Economic Commission on Latin America, which was the 303 00:16:52,160 --> 00:16:56,800 Speaker 4: godfather of import substitution, and also the planning agencies in 304 00:16:56,840 --> 00:16:59,920 Speaker 4: the Global South, all saying we need to promote exports 305 00:17:00,040 --> 00:17:03,360 Speaker 4: in our economies to push these guys into competitive regions. 306 00:17:04,000 --> 00:17:06,159 Speaker 4: But it only happened in two or three countries. In 307 00:17:06,200 --> 00:17:09,320 Speaker 4: country after country after country, you found them hanging on 308 00:17:09,440 --> 00:17:14,040 Speaker 4: to the subsidies, and the general import substitution long after 309 00:17:14,080 --> 00:17:17,439 Speaker 4: everyone realized, look, we've reached about as far as we 310 00:17:17,480 --> 00:17:20,720 Speaker 4: can go with the subsidy side. Now we need to 311 00:17:20,760 --> 00:17:23,560 Speaker 4: push these guys into competition. Long after they understood that, 312 00:17:24,000 --> 00:17:27,360 Speaker 4: they stuck with a self defeating policy. Question is why, 313 00:17:27,400 --> 00:17:31,440 Speaker 4: and the answer is political. It's basically exists. What all 314 00:17:31,440 --> 00:17:34,200 Speaker 4: the economists assumed was a government and a state that's 315 00:17:34,280 --> 00:17:37,159 Speaker 4: essentially free to do and powerful enough to do whatever 316 00:17:37,200 --> 00:17:39,760 Speaker 4: it wants to tell firms to do whatever it wants 317 00:17:39,760 --> 00:17:41,760 Speaker 4: them to do, and they're going to step into line. 318 00:17:42,240 --> 00:17:46,199 Speaker 4: But the fact is, in any modern industrial capitalist economy, 319 00:17:46,280 --> 00:17:49,200 Speaker 4: these firms who you're trying to push into exports are 320 00:17:49,240 --> 00:17:51,520 Speaker 4: also the people with the most political power, the most 321 00:17:51,560 --> 00:17:54,800 Speaker 4: political influence. They have the lobbyists, they have all the money, 322 00:17:54,840 --> 00:17:58,000 Speaker 4: They fund elections, and they run the economy. So here's 323 00:17:58,040 --> 00:17:59,960 Speaker 4: the trap you were in. You gave them a bunch 324 00:18:00,000 --> 00:18:02,720 Speaker 4: bunch of free money, and now you're asking to give 325 00:18:02,800 --> 00:18:06,040 Speaker 4: up that free money and go into essentially shark infested 326 00:18:06,080 --> 00:18:09,320 Speaker 4: waters and country after country. What most of them said was, ah, 327 00:18:09,320 --> 00:18:11,440 Speaker 4: we're not going to do it. Actually, we like it 328 00:18:11,560 --> 00:18:13,879 Speaker 4: just the way it is. And since we fund all 329 00:18:13,880 --> 00:18:16,479 Speaker 4: the politicians, whoever gets into power We're going to make 330 00:18:16,480 --> 00:18:19,679 Speaker 4: sure they keep plowing this money towards US. Now, in 331 00:18:19,720 --> 00:18:23,280 Speaker 4: the countries where that didn't happen, Korea, Taiwan, Japan, why 332 00:18:23,280 --> 00:18:27,120 Speaker 4: did it not happen. Some very very special circumstances allowed 333 00:18:27,160 --> 00:18:30,560 Speaker 4: them to get into the shark infested waters in a 334 00:18:30,600 --> 00:18:32,959 Speaker 4: way that was safe. So I'll give you the example 335 00:18:32,960 --> 00:18:37,080 Speaker 4: of Korea. Korea switches to a heavy reliance on exports 336 00:18:37,800 --> 00:18:41,520 Speaker 4: in the mid to late sixties, why does it do that? Essentially, 337 00:18:41,600 --> 00:18:44,520 Speaker 4: what happened was it entered into these partnerships with Japanese 338 00:18:44,520 --> 00:18:48,639 Speaker 4: firms who already had a foothold in the highly competitive 339 00:18:48,640 --> 00:18:52,119 Speaker 4: and thereby dangerous American market, foothold in what in the 340 00:18:52,400 --> 00:18:57,359 Speaker 4: lower end manufacturing exports sectors, exports for Japan, imports for 341 00:18:57,359 --> 00:19:02,160 Speaker 4: the United States, where they had established sales networks, banking facilities. 342 00:19:02,359 --> 00:19:04,720 Speaker 4: They knew the market, they knew they had customer relations, 343 00:19:04,800 --> 00:19:07,120 Speaker 4: and what Japan wanted to do is essentially move out 344 00:19:07,119 --> 00:19:11,000 Speaker 4: of these lines into more high end lines of high 345 00:19:11,080 --> 00:19:15,320 Speaker 4: end consumer products and capital goods. So what they said was, actually, 346 00:19:15,800 --> 00:19:18,879 Speaker 4: we don't have to give up all the contacts and 347 00:19:18,920 --> 00:19:20,880 Speaker 4: all the money we're making in these low end lines. 348 00:19:21,080 --> 00:19:23,440 Speaker 4: As we can do is have joint ventures with Korean firms. 349 00:19:24,359 --> 00:19:27,359 Speaker 4: They come in, we shepherd them into selling shirts and 350 00:19:27,400 --> 00:19:29,639 Speaker 4: shoes and all this. And the way we make money 351 00:19:29,680 --> 00:19:32,800 Speaker 4: is we give them the bank loans that enables them 352 00:19:32,840 --> 00:19:35,520 Speaker 4: to open up the factories in Korea that produce this stuff. 353 00:19:35,840 --> 00:19:39,040 Speaker 4: So now we're making money in the higher end goods 354 00:19:39,280 --> 00:19:42,800 Speaker 4: that we're entering in the United States for the first time, 355 00:19:43,400 --> 00:19:45,560 Speaker 4: but in the lower end sectors we switch from selling 356 00:19:45,600 --> 00:19:49,160 Speaker 4: products to selling loans, and that way, the Korean firms 357 00:19:49,240 --> 00:19:52,040 Speaker 4: take advantage of our sales networks, overcome a lot of 358 00:19:52,040 --> 00:19:55,439 Speaker 4: the entry barriers, and they're good on the loans that 359 00:19:55,440 --> 00:19:57,880 Speaker 4: were given them, and now we've got money coming from 360 00:19:57,880 --> 00:20:00,280 Speaker 4: two ends instead of one. Now the thing is take 361 00:20:00,280 --> 00:20:04,360 Speaker 4: country like India. India had partnerships with British and American firms, 362 00:20:04,400 --> 00:20:07,480 Speaker 4: just like Korea has partnerships with Japanese firms. The difference 363 00:20:07,560 --> 00:20:11,520 Speaker 4: is the British and American firms explicitly forbade their Indian 364 00:20:11,560 --> 00:20:15,960 Speaker 4: partners in India to sell in export markets because they 365 00:20:16,000 --> 00:20:18,800 Speaker 4: wanted to keep them for themselves. Ah So, now whereas 366 00:20:18,880 --> 00:20:22,960 Speaker 4: Korea is getting a free entry into these deadly competitive 367 00:20:22,960 --> 00:20:27,000 Speaker 4: markets through the good fortune Essentially, it's just good fortune 368 00:20:27,119 --> 00:20:29,800 Speaker 4: of having had Japanese partner Indians. 369 00:20:29,920 --> 00:20:33,199 Speaker 2: There's a fundamentally different DEVI of Japanese in the US partner. 370 00:20:33,359 --> 00:20:34,680 Speaker 2: When the US is the market you're going. 371 00:20:34,760 --> 00:20:37,119 Speaker 4: It's a historical accident. Korea happened to be in the 372 00:20:37,200 --> 00:20:38,960 Speaker 4: Japanese economic sphere of influence. 373 00:20:39,000 --> 00:20:39,119 Speaker 3: Yea. 374 00:20:39,520 --> 00:20:41,320 Speaker 4: Now, I should say one thing, there is this myth 375 00:20:41,359 --> 00:20:45,000 Speaker 4: out there that because of the Cold War, because the 376 00:20:45,119 --> 00:20:48,720 Speaker 4: United States favored Korea and favored it, essentially opened the 377 00:20:48,760 --> 00:20:51,760 Speaker 4: doors to them and allowed them entry into these markets. 378 00:20:51,800 --> 00:20:55,280 Speaker 4: And that's really not true because again, when you're entering 379 00:20:55,320 --> 00:20:58,680 Speaker 4: these markets, you're displacing American firms. Why would American firms 380 00:20:58,800 --> 00:21:01,680 Speaker 4: let their congressmen just open up the doors to their 381 00:21:01,680 --> 00:21:03,959 Speaker 4: competitors and they didn't. What I found when I did 382 00:21:03,960 --> 00:21:07,119 Speaker 4: the research was every time the Koreans succeeded in some 383 00:21:07,200 --> 00:21:09,439 Speaker 4: part of the country, the firms from that part of 384 00:21:09,440 --> 00:21:12,280 Speaker 4: the country got their representatives to put up tariff barriers 385 00:21:12,760 --> 00:21:15,199 Speaker 4: keeping those Korean firms out. What the Koreans did that 386 00:21:15,280 --> 00:21:18,520 Speaker 4: was really amazing was they kept switching from one line 387 00:21:18,520 --> 00:21:20,840 Speaker 4: to the other. So if you're you know, textiles is 388 00:21:20,840 --> 00:21:24,280 Speaker 4: a hierarchical sector, so if they put up barriers on 389 00:21:24,320 --> 00:21:26,840 Speaker 4: the lowest end of textiles, you move up the value chain. 390 00:21:26,760 --> 00:21:29,280 Speaker 3: Into he's swinging from tree to tree. 391 00:21:29,480 --> 00:21:32,880 Speaker 4: Yeah, exactly. So it wasn't the Cold War, It wasn't 392 00:21:32,920 --> 00:21:36,080 Speaker 4: America handing these country free markets. I mean, they would 393 00:21:36,119 --> 00:21:38,320 Speaker 4: have done that with India in the fifties and sixties. 394 00:21:38,359 --> 00:21:41,080 Speaker 4: India was the golden child of American foreign policy because 395 00:21:41,080 --> 00:21:43,800 Speaker 4: they wanted it to be a example against China. They 396 00:21:43,800 --> 00:21:46,960 Speaker 4: couldn't do it. These countries succeeded not because the US 397 00:21:47,080 --> 00:21:49,320 Speaker 4: opened up their markets tomb but because they had the 398 00:21:49,720 --> 00:21:52,480 Speaker 4: wherewithal to get over American tariffs. 399 00:21:53,000 --> 00:21:55,560 Speaker 3: Since you brought up India, I feel I need to 400 00:21:55,720 --> 00:21:59,600 Speaker 3: perhaps preface this question with a caveat, which is everything 401 00:21:59,640 --> 00:22:03,680 Speaker 3: I know about Indian industrial policy came from the Bollywood 402 00:22:03,720 --> 00:22:07,919 Speaker 3: film The Guru, where I think Abhishek Bachchan plays like 403 00:22:07,920 --> 00:22:11,639 Speaker 3: a polyester manufacturer that becomes a business tycoon. And everything 404 00:22:11,680 --> 00:22:15,440 Speaker 3: I know about Indian infrastructure comes from Suedes with Sharak Khan. 405 00:22:15,880 --> 00:22:18,480 Speaker 3: And everything I know about cricket comes from Lagan. Anyway, 406 00:22:19,160 --> 00:22:21,000 Speaker 3: that was good, thank you. 407 00:22:20,760 --> 00:22:23,879 Speaker 4: So essentially you just advertised three Indian movies. 408 00:22:24,280 --> 00:22:26,879 Speaker 3: Yes, but they're all excellent. But one thing I was 409 00:22:27,000 --> 00:22:31,000 Speaker 3: wondering is, Okay, the temptation is to just play in 410 00:22:31,040 --> 00:22:35,040 Speaker 3: your domestic market because it's easier, you're protected that way. 411 00:22:35,960 --> 00:22:39,040 Speaker 3: I guess what I'm wondering is does the size of 412 00:22:39,080 --> 00:22:41,720 Speaker 3: the domestic market or the makeup of the domestic market 413 00:22:42,040 --> 00:22:44,880 Speaker 3: matter here, because if I also think about a thing 414 00:22:44,960 --> 00:22:49,680 Speaker 3: that ties together Taiwan, Japan, and Korea, it's that at 415 00:22:49,720 --> 00:22:53,800 Speaker 3: those times they were relatively small markets and not as 416 00:22:53,840 --> 00:22:57,439 Speaker 3: wealthy as they are now. Certainly, definitely South Korea was 417 00:22:57,600 --> 00:23:00,679 Speaker 3: pretty poor in that time period. So I guess is 418 00:23:00,720 --> 00:23:06,160 Speaker 3: the temptation perhaps to look outside and maybe do more 419 00:23:06,240 --> 00:23:10,200 Speaker 3: exports if your own domestic market is smaller or more limited. 420 00:23:10,359 --> 00:23:12,320 Speaker 3: Maybe China is the exception here. 421 00:23:13,359 --> 00:23:15,280 Speaker 4: Yes and no. It's a really good question. And on 422 00:23:15,320 --> 00:23:18,440 Speaker 4: this too, I think the people have misunderstood the dynamics 423 00:23:18,440 --> 00:23:20,720 Speaker 4: of what was going on, So the size of the 424 00:23:20,760 --> 00:23:25,440 Speaker 4: domestic market can play can play a role. But two 425 00:23:25,520 --> 00:23:28,879 Speaker 4: points here. The first is don't confuse the size of 426 00:23:28,880 --> 00:23:31,720 Speaker 4: the market with the size of the population. So people 427 00:23:31,760 --> 00:23:34,480 Speaker 4: often think India has a huge market, but that's because 428 00:23:34,480 --> 00:23:37,200 Speaker 4: it has a lot of people, but they're extremely poor people. 429 00:23:37,840 --> 00:23:41,359 Speaker 4: So take England population of what fifty million or something. 430 00:23:41,400 --> 00:23:44,520 Speaker 4: I think that's what one twentieth the size of the 431 00:23:44,520 --> 00:23:49,000 Speaker 4: Indian population. But the market is what fifteen twenty times bigger. 432 00:23:49,240 --> 00:23:52,560 Speaker 4: So what matters is your income, your national income, not 433 00:23:52,560 --> 00:23:56,800 Speaker 4: so much your national population. So in that sense, the 434 00:23:56,840 --> 00:23:59,639 Speaker 4: Indian market is actually quite small in the fifties and 435 00:23:59,680 --> 00:24:03,800 Speaker 4: sixties and seventies, and can't really explain why the firms 436 00:24:03,840 --> 00:24:07,920 Speaker 4: continued to point their investments towards that market rather than 437 00:24:08,000 --> 00:24:10,320 Speaker 4: export markets, because there actually wasn't a whole lot you 438 00:24:10,320 --> 00:24:13,000 Speaker 4: could sell there. So the assumption is often made that 439 00:24:13,080 --> 00:24:16,600 Speaker 4: Korea and Taiwan move outward because they have small markets. Well, 440 00:24:17,200 --> 00:24:20,200 Speaker 4: countries in Central America have tiny, little markets. They never 441 00:24:20,240 --> 00:24:23,320 Speaker 4: moved outward. Haiti has almost no market, and it didn't 442 00:24:23,359 --> 00:24:25,760 Speaker 4: move outward. The thing is, it all comes down to 443 00:24:26,359 --> 00:24:29,199 Speaker 4: not what's rational to do, but who's got the power. 444 00:24:29,520 --> 00:24:32,119 Speaker 4: And even in these small countries with the small markets, 445 00:24:32,280 --> 00:24:36,400 Speaker 4: since businesses had all the political influence, they kept their 446 00:24:36,440 --> 00:24:39,719 Speaker 4: governments wedded to this free money much longer than they 447 00:24:39,760 --> 00:24:40,280 Speaker 4: ought to have. 448 00:24:41,280 --> 00:24:44,600 Speaker 2: I want to clarify something because you're talking, and this 449 00:24:44,640 --> 00:24:48,240 Speaker 2: is a really important point, which is the political dynamics 450 00:24:48,320 --> 00:24:52,080 Speaker 2: within the country and essentially the ability of the government 451 00:24:52,119 --> 00:24:57,119 Speaker 2: to discipline the capitalist class via export conditions, upon subsidies 452 00:24:57,240 --> 00:25:00,080 Speaker 2: or gifts or so forth. But at the same time, 453 00:25:00,640 --> 00:25:03,919 Speaker 2: you've also said that the difference between say a Korea 454 00:25:03,960 --> 00:25:07,560 Speaker 2: and India is just sort of the luck and coincidence 455 00:25:07,720 --> 00:25:11,560 Speaker 2: of Korea's proximity to Japan's sphere of influence in the 456 00:25:11,640 --> 00:25:15,880 Speaker 2: historical legacy of India's relationship with the UK, and also 457 00:25:16,000 --> 00:25:18,560 Speaker 2: kind of the US in the Cold War, which does 458 00:25:18,600 --> 00:25:21,720 Speaker 2: not necessarily sound like a difference to me. That is 459 00:25:21,760 --> 00:25:25,280 Speaker 2: about the role of the capitalist class within society. So 460 00:25:25,359 --> 00:25:28,080 Speaker 2: can you explain that a little bit further? What was 461 00:25:28,119 --> 00:25:32,919 Speaker 2: the difference politically in Korea versus say, in India, and 462 00:25:32,960 --> 00:25:36,360 Speaker 2: then in India specifically, how does it look when the 463 00:25:36,480 --> 00:25:40,399 Speaker 2: domestic capitalists or the domestic titans of industry are able 464 00:25:40,480 --> 00:25:43,800 Speaker 2: to subvert the attempts at discipline. 465 00:25:43,480 --> 00:25:46,320 Speaker 4: Right now, again a very good question. You're right that 466 00:25:46,520 --> 00:25:49,840 Speaker 4: it's putting all the burden on the historical accident of 467 00:25:50,040 --> 00:25:52,800 Speaker 4: which country advance country you partner up with, seems to 468 00:25:52,800 --> 00:25:55,480 Speaker 4: take the politics out of it, But it doesn't in 469 00:25:55,520 --> 00:25:58,320 Speaker 4: the following reason, if we bring in another set of cases, 470 00:25:58,480 --> 00:26:02,440 Speaker 4: you see that merely having these foreign partners isn't enough, 471 00:26:02,600 --> 00:26:07,040 Speaker 4: which is Southeast Asia. So Korea and Taiwan fall into 472 00:26:07,080 --> 00:26:12,480 Speaker 4: Japan's you could say, economic orbit, but so do Thailand 473 00:26:12,560 --> 00:26:18,200 Speaker 4: and Malaysia, because the Japanese historically had dominated both Northeast 474 00:26:18,240 --> 00:26:22,840 Speaker 4: and Southeast Asia. Now Malaysia and Thailand also start out 475 00:26:22,840 --> 00:26:25,560 Speaker 4: with import substitution and all this sort of stuff, and 476 00:26:25,640 --> 00:26:29,639 Speaker 4: they also have access to Japanese firms and Japanese know 477 00:26:29,680 --> 00:26:32,479 Speaker 4: how technology and all that, but they're never able to 478 00:26:32,680 --> 00:26:35,920 Speaker 4: make the same kind of movement upwards that Korea and 479 00:26:35,960 --> 00:26:39,480 Speaker 4: Taiwan do. And was that It's because in those countries, 480 00:26:40,600 --> 00:26:45,320 Speaker 4: while there was the opportunity to hazard these very competitive 481 00:26:45,359 --> 00:26:48,600 Speaker 4: foreign markets, it was still a bit of a risk 482 00:26:48,720 --> 00:26:52,359 Speaker 4: compared to the protected domestic markets, and the capitalists there 483 00:26:53,000 --> 00:26:56,600 Speaker 4: were able to overwhelm and squelch the government's efforts to 484 00:26:56,640 --> 00:26:59,960 Speaker 4: kind of prod them outward, Whereas in Korea and Taiwan, 485 00:27:00,119 --> 00:27:04,919 Speaker 4: what happened was there was a kind of irreducible absolute 486 00:27:05,119 --> 00:27:09,960 Speaker 4: achievement of building a government, building a state that had 487 00:27:10,000 --> 00:27:13,560 Speaker 4: the wherewithal and the power and the internal solidity to 488 00:27:13,680 --> 00:27:18,320 Speaker 4: negotiate effectively with their domestic business class. Now what happens 489 00:27:18,320 --> 00:27:21,840 Speaker 4: in India is that the business class essentially overwhelms the state, 490 00:27:22,680 --> 00:27:25,000 Speaker 4: so that when the government is saying to them, let's 491 00:27:25,040 --> 00:27:28,600 Speaker 4: try to at least build towards regional markets, if not 492 00:27:28,640 --> 00:27:31,960 Speaker 4: the American market, the European market, if not the American market, 493 00:27:32,280 --> 00:27:35,280 Speaker 4: they're unable to do so, and they're unable to have 494 00:27:35,359 --> 00:27:40,600 Speaker 4: the internal coherence that makes government assistance even attractive to 495 00:27:40,680 --> 00:27:44,160 Speaker 4: these capitalists. These businesses make their calculations and they say 496 00:27:44,200 --> 00:27:46,679 Speaker 4: that for the time being, for the foreseeable future, we're 497 00:27:46,680 --> 00:27:49,080 Speaker 4: going to stick with this domestic market, and the government 498 00:27:49,200 --> 00:27:52,040 Speaker 4: just doesn't have the power to say no, to overwhelm 499 00:27:52,080 --> 00:27:53,920 Speaker 4: them because they have too much of the influence. 500 00:28:09,560 --> 00:28:12,520 Speaker 3: Could you talk a little bit more about how actual 501 00:28:12,560 --> 00:28:17,280 Speaker 3: capital and investment fits into your framework, because thinking back 502 00:28:17,320 --> 00:28:20,760 Speaker 3: to your definition of industrial policy, in order for this 503 00:28:20,880 --> 00:28:23,840 Speaker 3: to work, you have to have the ability to direct 504 00:28:24,080 --> 00:28:27,439 Speaker 3: capital to industries or businesses that you deem to be 505 00:28:27,760 --> 00:28:30,760 Speaker 3: desirable for one reason or another. But you also have 506 00:28:30,840 --> 00:28:35,359 Speaker 3: to have the capital to actually direct and move, and 507 00:28:35,400 --> 00:28:40,360 Speaker 3: that capital presumably has to be somewhat competitively priced, I 508 00:28:40,400 --> 00:28:43,719 Speaker 3: would imagine. So how do capital costs and availability kind 509 00:28:43,760 --> 00:28:45,000 Speaker 3: of fit into your framework? 510 00:28:45,800 --> 00:28:49,640 Speaker 4: Their essential component of import substitution, and this is not 511 00:28:49,720 --> 00:28:54,480 Speaker 4: pretty generically known. One of the big obstacles to industrialization 512 00:28:54,520 --> 00:28:57,080 Speaker 4: in these poor countries is what's called the cost of capital, 513 00:28:57,720 --> 00:29:00,240 Speaker 4: which is they have to try to raise money in 514 00:29:00,280 --> 00:29:03,280 Speaker 4: a country where banking is really really underdeveloped, which means 515 00:29:03,320 --> 00:29:06,480 Speaker 4: loans are very expensive, which means it's another hurdle to 516 00:29:06,520 --> 00:29:10,880 Speaker 4: be competitive in global markets. So this is something that 517 00:29:10,920 --> 00:29:14,880 Speaker 4: started actually in nineteenth century. I think Germany's the pioneer, 518 00:29:14,920 --> 00:29:18,040 Speaker 4: but then Russia follows soon after. Russia, before the Revolution, 519 00:29:18,840 --> 00:29:21,640 Speaker 4: governments understood that banking and cost of capital is a 520 00:29:21,720 --> 00:29:25,480 Speaker 4: huge obstacle, so they developed investment banks. These are state 521 00:29:25,640 --> 00:29:29,520 Speaker 4: owned and state directed investment banks, and the fundamental activity 522 00:29:29,520 --> 00:29:33,400 Speaker 4: of all these banks was to provide artificially low and 523 00:29:33,520 --> 00:29:37,680 Speaker 4: cheap credit to local firms to lower their entry barriers 524 00:29:37,680 --> 00:29:41,680 Speaker 4: into these competitive markets. So that carried over right from 525 00:29:41,680 --> 00:29:45,240 Speaker 4: the eighteen eighties into the nineteen seventies and eighties. All 526 00:29:45,280 --> 00:29:49,600 Speaker 4: these countries had nationalized banking systems, the main function of 527 00:29:49,640 --> 00:29:53,640 Speaker 4: which was to collect large pools of domestic savings and 528 00:29:53,720 --> 00:29:56,000 Speaker 4: then bundle them up and funnel them towards investors. 529 00:29:57,040 --> 00:29:58,960 Speaker 2: I want to talk a little bit about the present 530 00:29:59,040 --> 00:30:00,840 Speaker 2: day in the US, which is sort of where we 531 00:30:01,040 --> 00:30:05,440 Speaker 2: began our conversation. We talk about the Chips Act and 532 00:30:05,440 --> 00:30:09,000 Speaker 2: the Inflatial Reduction Active so forth. What would you describe 533 00:30:09,200 --> 00:30:12,440 Speaker 2: as just sort of the general basics of what the 534 00:30:12,560 --> 00:30:15,920 Speaker 2: US is trying to accomplish and how different is it 535 00:30:16,240 --> 00:30:20,160 Speaker 2: or how similar is it to what many poorer countries 536 00:30:20,440 --> 00:30:22,560 Speaker 2: have tried to do, you know, for maybe close to 537 00:30:22,600 --> 00:30:23,480 Speaker 2: one hundred years. 538 00:30:24,000 --> 00:30:26,480 Speaker 4: What it's trying to do is I think industrial policy. 539 00:30:26,640 --> 00:30:29,720 Speaker 4: It's definitely trying to do industrial policy in that the 540 00:30:29,800 --> 00:30:32,280 Speaker 4: key to industrial policy is you're not letting the market 541 00:30:32,600 --> 00:30:36,040 Speaker 4: on its own decide where investment is flowing. You're trying 542 00:30:36,080 --> 00:30:39,200 Speaker 4: to manipulate the flow of investment. Now, what the US 543 00:30:39,280 --> 00:30:42,040 Speaker 4: is doing is saying private investors on their own are 544 00:30:42,080 --> 00:30:45,080 Speaker 4: not going into chip manufacturer to the extent that they should, 545 00:30:45,120 --> 00:30:47,360 Speaker 4: and they're not going into electro vehicles to the extent 546 00:30:47,400 --> 00:30:49,080 Speaker 4: that they should. So we're going to make it more 547 00:30:49,080 --> 00:30:51,880 Speaker 4: attractive to them. That's the subsidies component of it. And 548 00:30:51,960 --> 00:30:55,000 Speaker 4: so you could say they're essentially what's called picking winners. Yeah, 549 00:30:55,040 --> 00:30:57,680 Speaker 4: they've targeted a certain sector that they want to see grow, 550 00:30:57,720 --> 00:30:59,880 Speaker 4: and they're doing what they can to make it more attractive. 551 00:31:00,200 --> 00:31:03,320 Speaker 4: So that's industrial policy, and in that respect it is 552 00:31:03,480 --> 00:31:05,800 Speaker 4: like what the poor countries tried to do. It is 553 00:31:06,000 --> 00:31:07,920 Speaker 4: also like what the poor countries try to do in 554 00:31:07,960 --> 00:31:10,680 Speaker 4: one other respect, which is they're trying to do it 555 00:31:10,720 --> 00:31:14,280 Speaker 4: with a state that's not very well equipped at the 556 00:31:14,320 --> 00:31:18,480 Speaker 4: outset to actually undertake such policies. Now, what do we 557 00:31:18,560 --> 00:31:22,720 Speaker 4: mean by that? When India and Korea, or Mexico and 558 00:31:22,760 --> 00:31:27,479 Speaker 4: Brazil started their post war industrial policies, they started it 559 00:31:27,480 --> 00:31:29,960 Speaker 4: with a government that was good at doing certain things. 560 00:31:30,000 --> 00:31:32,320 Speaker 4: And what it was good at doing was raising taxes 561 00:31:32,360 --> 00:31:36,640 Speaker 4: to some extent, providing tariffs to some extent, and policing 562 00:31:37,120 --> 00:31:39,960 Speaker 4: and some kind of credit. What it could not very 563 00:31:39,960 --> 00:31:45,720 Speaker 4: well do was have an institutionalized relationship with leading firms, 564 00:31:46,360 --> 00:31:50,280 Speaker 4: monitored their activities, and then imposed some kind of discipline 565 00:31:50,280 --> 00:31:51,720 Speaker 4: on them to make sure that the money they were 566 00:31:51,760 --> 00:31:53,720 Speaker 4: getting was being used productively. They didn't have any of 567 00:31:53,760 --> 00:31:55,719 Speaker 4: those things, so they had to build it up. So 568 00:31:55,880 --> 00:31:57,840 Speaker 4: but the fifties to the seventies was a period of 569 00:31:58,000 --> 00:32:00,440 Speaker 4: what in social science we call state building, which is 570 00:32:00,520 --> 00:32:03,680 Speaker 4: essentially these countries once they decided they wanted to have 571 00:32:03,720 --> 00:32:06,760 Speaker 4: planning an industrial policy had to pull themselves up by 572 00:32:06,800 --> 00:32:10,640 Speaker 4: their political bootstraps, as it were, create the administrative wherewithal 573 00:32:10,720 --> 00:32:17,240 Speaker 4: the bureaucratic capacity to effectively ate, deploy resources, be negotiate 574 00:32:17,320 --> 00:32:20,800 Speaker 4: with firms and see hold them accountable. The US is 575 00:32:21,040 --> 00:32:25,120 Speaker 4: like those countries in that outside of defense, the American 576 00:32:25,160 --> 00:32:27,600 Speaker 4: government really doesn't have a lot of what we call 577 00:32:27,640 --> 00:32:32,880 Speaker 4: administrative capacity state capacity. So it knows how to raise money, 578 00:32:33,160 --> 00:32:35,880 Speaker 4: It even knows how to earmark that money for certain sectors, 579 00:32:36,360 --> 00:32:39,360 Speaker 4: it is not yet fully equipped to get that money 580 00:32:39,400 --> 00:32:42,080 Speaker 4: to the sectors, to then make sure that it's being 581 00:32:42,200 --> 00:32:43,720 Speaker 4: used the way they want them to, and then to 582 00:32:43,760 --> 00:32:46,120 Speaker 4: hold those sectors accountable. And if you know, I mean, 583 00:32:46,320 --> 00:32:49,520 Speaker 4: I think this is pretty well understood. Now two years after, 584 00:32:49,840 --> 00:32:51,600 Speaker 4: two and a half years after the Act was passed, 585 00:32:51,720 --> 00:32:53,560 Speaker 4: a lot of the money just still sitting there. It 586 00:32:53,600 --> 00:32:56,240 Speaker 4: hasn't really gotten to the firm that were being targeted. Why. 587 00:32:56,600 --> 00:33:00,000 Speaker 4: It's because what's called the absorptive capacity of all these 588 00:33:00,120 --> 00:33:03,360 Speaker 4: monies has not really been built up. Now. It's different 589 00:33:03,400 --> 00:33:07,120 Speaker 4: from the LDCs and these under developed countries in one respect, 590 00:33:07,120 --> 00:33:10,640 Speaker 4: which is that it is a country that's already developed. 591 00:33:10,640 --> 00:33:13,120 Speaker 4: As you said in the beginning of this program, and 592 00:33:13,160 --> 00:33:16,200 Speaker 4: because it's already developed, what you're doing is not trying 593 00:33:16,240 --> 00:33:19,840 Speaker 4: to create sectors out of whole cloth the way Korea 594 00:33:20,040 --> 00:33:23,640 Speaker 4: and Brazil did. There is already a chips manufacturing sector 595 00:33:23,640 --> 00:33:26,520 Speaker 4: in this country. There is already ev manufacturing. So what 596 00:33:26,560 --> 00:33:29,640 Speaker 4: you're doing, you're not trying to get industrialists drag them 597 00:33:29,720 --> 00:33:33,120 Speaker 4: kicking and screaming into new sectors. They're already kind of 598 00:33:33,160 --> 00:33:36,240 Speaker 4: inclined tours to go into those sectors. You're simply trying 599 00:33:36,240 --> 00:33:40,840 Speaker 4: to accelerate the flow of investment rather than redirect it altogether. 600 00:33:41,480 --> 00:33:43,360 Speaker 4: So that means that the heavy lifting isn't quite as 601 00:33:43,400 --> 00:33:46,360 Speaker 4: daunting as it was in these less developed countries. But 602 00:33:46,480 --> 00:33:48,720 Speaker 4: there's no getting around the fact that even though it's 603 00:33:48,800 --> 00:33:51,720 Speaker 4: less daunting, you still need to have a government that's 604 00:33:51,760 --> 00:33:54,920 Speaker 4: equipped to undertake these tasks and not simply to announce them, 605 00:33:55,160 --> 00:33:57,000 Speaker 4: and that gap hasn't yet been filled. 606 00:33:57,800 --> 00:34:02,600 Speaker 3: Is the comparative advantage haha of US industrial policy, though, 607 00:34:03,160 --> 00:34:06,200 Speaker 3: going back to the domestic market point the size of 608 00:34:06,240 --> 00:34:08,520 Speaker 3: its own market, because I mean, the US is the 609 00:34:08,520 --> 00:34:10,600 Speaker 3: biggest market in the world. So even if the US 610 00:34:10,680 --> 00:34:16,560 Speaker 3: government can't make the US semiconductor globally competitive, they can 611 00:34:17,040 --> 00:34:21,719 Speaker 3: structure the business so that it is domestically very attractive 612 00:34:21,760 --> 00:34:24,200 Speaker 3: and maybe that's enough. You know, again, the biggest market 613 00:34:24,200 --> 00:34:26,239 Speaker 3: in the world, so why not just do that? 614 00:34:26,680 --> 00:34:29,000 Speaker 4: Yeah, you know, it's interesting you mentioned China. This is 615 00:34:29,120 --> 00:34:32,440 Speaker 4: where I think you can take lessons from China. China 616 00:34:32,480 --> 00:34:37,360 Speaker 4: has also been now involved in industrial policy for close 617 00:34:37,400 --> 00:34:40,480 Speaker 4: to twenty years. And now this sounds surprising because China's 618 00:34:40,560 --> 00:34:42,120 Speaker 4: must be planned economy, So what do you mean that 619 00:34:42,120 --> 00:34:45,560 Speaker 4: it's only twenty years. What happened after Miles death was 620 00:34:45,640 --> 00:34:48,680 Speaker 4: that the pope planning apparatus and system in China kind 621 00:34:48,680 --> 00:34:51,839 Speaker 4: of fell apart for about fifteen or eighteen years. And 622 00:34:51,880 --> 00:34:54,840 Speaker 4: it's surprising. Even when I started reading up on this 623 00:34:54,880 --> 00:34:57,040 Speaker 4: even I was surprised to learn it's really in the 624 00:34:57,040 --> 00:35:00,319 Speaker 4: early two thousands that it gets going again. Now, what 625 00:35:00,360 --> 00:35:03,080 Speaker 4: they did is something that's akin to what you're saying, 626 00:35:03,120 --> 00:35:06,959 Speaker 4: which is, of course they did promote exports up and down, 627 00:35:07,480 --> 00:35:10,560 Speaker 4: but they also did something else, which is, after about 628 00:35:10,560 --> 00:35:15,319 Speaker 4: twenty ten, they really started emphasizing the domestic market. And 629 00:35:15,360 --> 00:35:17,200 Speaker 4: what they've been doing in the past six or eight 630 00:35:17,280 --> 00:35:21,719 Speaker 4: years once they've targeted the highest end markets for themselves 631 00:35:21,840 --> 00:35:26,200 Speaker 4: information technology and AI and such things. What they're doing 632 00:35:26,320 --> 00:35:31,560 Speaker 4: is they're basically using government finances as kind of venture capital, 633 00:35:32,440 --> 00:35:36,640 Speaker 4: and they direct the state bureaucrats to give cheap loans 634 00:35:36,719 --> 00:35:40,319 Speaker 4: to a fairly large number of firms, and then they 635 00:35:40,400 --> 00:35:44,440 Speaker 4: kind of wait and see who survives in domestic competition. 636 00:35:45,120 --> 00:35:47,400 Speaker 4: So they let firms start up. Some of them is 637 00:35:47,400 --> 00:35:49,439 Speaker 4: through the venture capital, some of these firms are doing 638 00:35:49,440 --> 00:35:51,960 Speaker 4: it on their own, and then they essentially see, all right, 639 00:35:52,000 --> 00:35:54,839 Speaker 4: who are the top three, because how can they do that? 640 00:35:55,120 --> 00:35:57,200 Speaker 4: The domestic market has grown to the point where it's 641 00:35:57,239 --> 00:36:00,880 Speaker 4: intensely competitive, so you see who who is winning the 642 00:36:00,920 --> 00:36:05,680 Speaker 4: domestic battle. Then you essentially catch them in their infancy 643 00:36:06,400 --> 00:36:07,920 Speaker 4: and you say, we're going to bet on these guys. 644 00:36:08,239 --> 00:36:11,400 Speaker 4: It's different from what the earlier generation of poor countries 645 00:36:11,400 --> 00:36:14,800 Speaker 4: did where they actually created these firms from whole cloth 646 00:36:15,480 --> 00:36:18,000 Speaker 4: and they hope that they would play by the rules. 647 00:36:18,600 --> 00:36:21,480 Speaker 4: China lets them do the sink or swim for a 648 00:36:21,520 --> 00:36:23,880 Speaker 4: few years, and then when firms have built up a 649 00:36:23,920 --> 00:36:27,360 Speaker 4: certain degree of competence shown that they're capable of managing 650 00:36:27,440 --> 00:36:30,560 Speaker 4: the market, they start plying money into them, and then 651 00:36:30,600 --> 00:36:32,799 Speaker 4: they throw them out into the export markets where they're 652 00:36:32,800 --> 00:36:33,400 Speaker 4: actually killing it. 653 00:36:33,480 --> 00:36:33,839 Speaker 3: Right now. 654 00:36:33,880 --> 00:36:36,160 Speaker 4: They're killing it so much that that's behind the American 655 00:36:36,239 --> 00:36:38,560 Speaker 4: drive to protect themselves. That's why you won't see a 656 00:36:38,680 --> 00:36:41,680 Speaker 4: Chinese EV because I think they would just clabber all 657 00:36:41,680 --> 00:36:45,279 Speaker 4: the American evs, so you protect them. Something like that 658 00:36:45,440 --> 00:36:48,160 Speaker 4: is certainly possible for the American firms, as you're saying, 659 00:36:48,520 --> 00:36:52,040 Speaker 4: which is you take the ones that are genuinely competitive 660 00:36:52,040 --> 00:36:55,759 Speaker 4: in American markets. Now, the thing about that is, I 661 00:36:55,760 --> 00:36:58,800 Speaker 4: think it would make more sense for the American state 662 00:36:58,880 --> 00:37:01,799 Speaker 4: to not keep the Chinese out. You let them in, 663 00:37:02,480 --> 00:37:06,920 Speaker 4: and then you essentially bring the export market home. Instead 664 00:37:06,920 --> 00:37:10,080 Speaker 4: of pushing American firms out into the export market. You 665 00:37:10,080 --> 00:37:12,839 Speaker 4: bring the important to the US, and then when you 666 00:37:13,000 --> 00:37:15,920 Speaker 4: see where your firms are weak, when you see where 667 00:37:15,920 --> 00:37:18,600 Speaker 4: they need help, then you do target in interventions, and 668 00:37:18,640 --> 00:37:21,520 Speaker 4: that way you make sure that they cannot simply take 669 00:37:21,520 --> 00:37:23,520 Speaker 4: the money and run, which is what happened in so 670 00:37:23,560 --> 00:37:24,280 Speaker 4: many other countries. 671 00:37:24,360 --> 00:37:26,719 Speaker 2: Okay, so this is a really important point, which is 672 00:37:26,760 --> 00:37:29,840 Speaker 2: that if the market discipline is a really important part 673 00:37:30,000 --> 00:37:33,839 Speaker 2: of successful industrial policy. You know, American firms get the 674 00:37:33,880 --> 00:37:37,040 Speaker 2: majority of their sales from the United States. There may 675 00:37:37,080 --> 00:37:38,799 Speaker 2: not be you know, there are probably some but non 676 00:37:38,880 --> 00:37:43,160 Speaker 2: gigantic export opportunities for them in your view two questions 677 00:37:43,239 --> 00:37:45,359 Speaker 2: is like, one, so the idea would be, okay, bring 678 00:37:45,400 --> 00:37:47,560 Speaker 2: the global market to the United States by it letting in. 679 00:37:48,080 --> 00:37:51,080 Speaker 2: And then b when you look at the US political system, 680 00:37:51,440 --> 00:37:55,600 Speaker 2: setting even aside the bureaucratic infrastructure, do you think that 681 00:37:55,680 --> 00:38:00,640 Speaker 2: we have an arrangement that allows for essentially capital discipline 682 00:38:00,680 --> 00:38:02,640 Speaker 2: that are disciplining the business class. 683 00:38:02,719 --> 00:38:04,640 Speaker 4: Okay. There are two elements of this question. One is 684 00:38:04,680 --> 00:38:07,520 Speaker 4: that the US of the democracy and these countries weren't 685 00:38:07,600 --> 00:38:09,880 Speaker 4: earlier on. And the second is that does it have 686 00:38:09,960 --> 00:38:13,640 Speaker 4: the kind of internal coherence to the government, just like 687 00:38:13,680 --> 00:38:15,799 Speaker 4: with the Cold War myth? There is another, I think 688 00:38:15,840 --> 00:38:20,240 Speaker 4: misunderstanding of industrial policy in the early post war decades, 689 00:38:20,280 --> 00:38:23,239 Speaker 4: which is that the countries that succeeded they succeeded because 690 00:38:23,239 --> 00:38:27,600 Speaker 4: they were authoritarian or because they were It's well, so 691 00:38:27,640 --> 00:38:29,319 Speaker 4: the way you want to settle this debate is say, okay, 692 00:38:29,640 --> 00:38:32,520 Speaker 4: let's look out into the world and see which countries, 693 00:38:32,560 --> 00:38:36,560 Speaker 4: by consensus, everyone agrees these countries A used industrial policy 694 00:38:36,719 --> 00:38:39,680 Speaker 4: and B were successful in doing so. Okay, So if 695 00:38:39,719 --> 00:38:42,600 Speaker 4: the argument from authoritarianism is right, there should be a 696 00:38:42,600 --> 00:38:48,840 Speaker 4: pretty high correlation between success in industrial policy and being authoritarian. Right, now, 697 00:38:49,000 --> 00:38:54,280 Speaker 4: what are the cases that are unimpeachable successes? Korea and Taiwan, 698 00:38:54,360 --> 00:38:57,480 Speaker 4: for sure, and those were both in fact authoritarian. But 699 00:38:57,560 --> 00:39:00,399 Speaker 4: the other ones are Japan and France, both of which 700 00:39:00,400 --> 00:39:04,000 Speaker 4: we're democratic. So certainly, in the four cases that everyone 701 00:39:04,040 --> 00:39:08,480 Speaker 4: says are shining examples of successful industrial policy, it's a wash. 702 00:39:08,560 --> 00:39:10,759 Speaker 4: It's two and two. Now I would go even further 703 00:39:10,840 --> 00:39:14,360 Speaker 4: than that. I would say that actually, authoritarianism is the 704 00:39:14,400 --> 00:39:19,040 Speaker 4: obstacle and democracy is an advantage. And here's why. Remember 705 00:39:19,040 --> 00:39:21,640 Speaker 4: what's happening in industrial policy. What's happening is you're taking 706 00:39:21,680 --> 00:39:25,520 Speaker 4: public money, tax money, citizens money, and you're given it 707 00:39:25,560 --> 00:39:29,560 Speaker 4: to people for their private benefits, which is industrialists, right, 708 00:39:30,200 --> 00:39:32,480 Speaker 4: And you're essentially saying to them, we want you to 709 00:39:32,560 --> 00:39:34,480 Speaker 4: use this money in a way that comports to the 710 00:39:34,520 --> 00:39:36,279 Speaker 4: public good and not just the private good. We want 711 00:39:36,280 --> 00:39:38,479 Speaker 4: you to invest it productively, and then everybody gains because 712 00:39:38,480 --> 00:39:40,600 Speaker 4: it's productivity enhancing, right, and there's going to be higher 713 00:39:40,640 --> 00:39:43,400 Speaker 4: growth and comes go up. Everybody gains. So there's a 714 00:39:43,440 --> 00:39:46,799 Speaker 4: public interest in that money being used wisely, all right, 715 00:39:46,840 --> 00:39:49,359 Speaker 4: If there's a public interest in it. In a democracy, 716 00:39:49,600 --> 00:39:53,640 Speaker 4: you can actually mobilize public opinion behind the project to say, look, 717 00:39:54,000 --> 00:39:58,319 Speaker 4: we promise all of you citizenry, higher growth because we're 718 00:39:58,320 --> 00:40:02,520 Speaker 4: going to have this policy of enhancing and improving domestic 719 00:40:02,560 --> 00:40:07,720 Speaker 4: industrial manufacturing capacity. Transparently, you say, we're going to actually 720 00:40:07,760 --> 00:40:12,279 Speaker 4: provide subsidies for national industrial development. But these guys are 721 00:40:12,320 --> 00:40:15,879 Speaker 4: taking your money, and listen, we're going to make sure 722 00:40:15,880 --> 00:40:17,360 Speaker 4: on your behalf, we're going to make sure they use 723 00:40:17,400 --> 00:40:20,759 Speaker 4: it wisely. So the thing that democracy does is a 724 00:40:20,800 --> 00:40:26,200 Speaker 4: democracy gives citizens some kind of power over what's being 725 00:40:26,280 --> 00:40:30,080 Speaker 4: done with their moneies. Okay, what's a dictatorship. A dictatorship 726 00:40:30,800 --> 00:40:34,480 Speaker 4: is a situation where democratic rights have been extinguished. Who 727 00:40:34,520 --> 00:40:37,000 Speaker 4: relies most on democratic rights the rich are the poor. 728 00:40:37,400 --> 00:40:40,880 Speaker 4: It's the poor because the rich always have access to 729 00:40:40,920 --> 00:40:44,200 Speaker 4: what politicians are doing. A dictatorship doesn't give the government 730 00:40:44,239 --> 00:40:48,239 Speaker 4: greater power over the wealthy. It gives the government greater 731 00:40:48,320 --> 00:40:51,960 Speaker 4: power over the poor because the wealthy always have power. So, 732 00:40:52,120 --> 00:40:56,319 Speaker 4: in fact, in a dictatorship, you should see more difficulty 733 00:40:56,360 --> 00:41:00,000 Speaker 4: in disciplining industrialists because now everything happens behind closed doors. 734 00:41:00,600 --> 00:41:03,560 Speaker 4: There's no freedom of the press, there's no freedom of association, 735 00:41:03,680 --> 00:41:10,920 Speaker 4: and essentially the corporate community has unimpeached, unblocked access and 736 00:41:11,080 --> 00:41:15,920 Speaker 4: power over the government. In all dictatorships, businesses run amok. 737 00:41:16,440 --> 00:41:19,600 Speaker 4: It's the citizens who suffer. So in my opinion, the 738 00:41:19,719 --> 00:41:22,799 Speaker 4: US being a democracy is actually helpful if you have 739 00:41:22,880 --> 00:41:27,440 Speaker 4: political parties that are actually sensitive to citizens' views. And 740 00:41:27,520 --> 00:41:30,479 Speaker 4: the truth is right now we live in some kind 741 00:41:30,480 --> 00:41:33,680 Speaker 4: of oligarchic system where both parties are bought and paid 742 00:41:33,719 --> 00:41:36,960 Speaker 4: for by the corporate community. So I would say the 743 00:41:37,080 --> 00:41:40,719 Speaker 4: challenge of the US is making this stuff more democratic, 744 00:41:41,280 --> 00:41:43,400 Speaker 4: not seeing the democracy as a challenge. 745 00:41:44,080 --> 00:41:46,560 Speaker 3: Just to hammer this point home, and this will be 746 00:41:46,600 --> 00:41:49,800 Speaker 3: my last question, but if you could waive a magic 747 00:41:50,000 --> 00:41:54,520 Speaker 3: industrialist policy wand over the US, what would be the 748 00:41:54,600 --> 00:41:58,759 Speaker 3: one thing, specific policy measure that you would change in 749 00:41:58,960 --> 00:42:02,640 Speaker 3: order to make I guess the risks of downsides to 750 00:42:02,760 --> 00:42:05,880 Speaker 3: industrial policy activist industrial policy reduce. 751 00:42:07,440 --> 00:42:11,279 Speaker 4: I think the United States should have an agency dedicated 752 00:42:11,480 --> 00:42:17,279 Speaker 4: to targeting particular sectors and fostering their growth. But it 753 00:42:17,320 --> 00:42:20,719 Speaker 4: should be an agency that is staffed not just by 754 00:42:20,840 --> 00:42:24,640 Speaker 4: bankers and industrialists, but also by representatives of trade unions 755 00:42:25,239 --> 00:42:28,120 Speaker 4: and the people the employees in these firms, because they 756 00:42:28,120 --> 00:42:30,799 Speaker 4: have a direct stake in how well those firms do. 757 00:42:31,920 --> 00:42:35,400 Speaker 4: I think if you harness the energy of the employees 758 00:42:35,560 --> 00:42:39,319 Speaker 4: alongside that of the industrialists, you're going to have a 759 00:42:39,400 --> 00:42:43,319 Speaker 4: dynamism in the sectors because a more engaged class of 760 00:42:43,360 --> 00:42:46,400 Speaker 4: employees is also going to be much more productive and 761 00:42:46,480 --> 00:42:48,800 Speaker 4: will see itself as having a stake in what's happening 762 00:42:48,840 --> 00:42:51,960 Speaker 4: with those investments. One of the downsides right now in 763 00:42:52,000 --> 00:42:55,000 Speaker 4: the United States is that there is such a one 764 00:42:55,120 --> 00:43:00,319 Speaker 4: sidedness to investment decisions that industrialists are able to make 765 00:43:00,400 --> 00:43:03,839 Speaker 4: their profits and make their investments without any regard for 766 00:43:03,920 --> 00:43:07,400 Speaker 4: how private benefits that they're getting from those investments renounced 767 00:43:07,400 --> 00:43:11,600 Speaker 4: to what's called their linkage effects, their wider impact on 768 00:43:11,640 --> 00:43:15,600 Speaker 4: economic growth, and their wider impact on what's happening in 769 00:43:15,640 --> 00:43:17,759 Speaker 4: the rest of the economy. So, if I could waive 770 00:43:17,760 --> 00:43:21,919 Speaker 4: a magic wand, I would make the American state more 771 00:43:21,960 --> 00:43:25,279 Speaker 4: transparent in how it's intervening in the economy, because it's 772 00:43:25,400 --> 00:43:28,120 Speaker 4: always doing it. There's no such thing as a lais 773 00:43:28,160 --> 00:43:31,560 Speaker 4: a fair state, even within the neoliberal era. I would 774 00:43:31,560 --> 00:43:34,759 Speaker 4: make it more transparent, more accountable to both the investors 775 00:43:35,360 --> 00:43:38,799 Speaker 4: and to the workers, because the investors also lose from 776 00:43:38,800 --> 00:43:41,279 Speaker 4: all the sweetheart deals that occur behind the curtain in 777 00:43:41,280 --> 00:43:45,560 Speaker 4: the defense sector make the bidding more competitive. The winners 778 00:43:45,600 --> 00:43:51,040 Speaker 4: ought to then be engaged to work with some sort 779 00:43:51,160 --> 00:43:55,080 Speaker 4: of works councils and trade union partnership with them, and 780 00:43:55,120 --> 00:43:58,400 Speaker 4: it ought to be seen as something that's redounding to 781 00:43:58,440 --> 00:44:00,960 Speaker 4: the collective good and not just on the assumption that 782 00:44:01,040 --> 00:44:03,640 Speaker 4: if you make lots of profits it'll trickle down to 783 00:44:03,719 --> 00:44:07,000 Speaker 4: the rest of the citizens. Because the political crisis that 784 00:44:07,040 --> 00:44:10,200 Speaker 4: we're in right now should be seen as problematic also 785 00:44:10,280 --> 00:44:13,480 Speaker 4: for our economic future. And the political crisis is coming 786 00:44:13,520 --> 00:44:16,759 Speaker 4: from one basic source, which is around eighty percent of 787 00:44:16,800 --> 00:44:19,680 Speaker 4: the people in the United States feel that their government 788 00:44:19,760 --> 00:44:22,319 Speaker 4: and their economy is captured by a narrow elite that's 789 00:44:22,400 --> 00:44:24,640 Speaker 4: unaccountable to them and which is going to lord it 790 00:44:24,680 --> 00:44:27,279 Speaker 4: over them forever. To come out of that, you not 791 00:44:27,360 --> 00:44:29,400 Speaker 4: only have to give them jobs, but you have to 792 00:44:29,440 --> 00:44:33,040 Speaker 4: give them new kinds of jobs where they feel respected, engage, 793 00:44:33,080 --> 00:44:34,879 Speaker 4: and where they feel they have a stake in what's 794 00:44:34,920 --> 00:44:37,680 Speaker 4: going on. If I could wait the magic wand that's 795 00:44:37,680 --> 00:44:38,200 Speaker 4: what I would do. 796 00:44:39,120 --> 00:44:41,799 Speaker 2: Great place to end it right there, Avic, thank you 797 00:44:41,840 --> 00:44:43,120 Speaker 2: so much for coming on the Outlaws. 798 00:44:43,120 --> 00:44:44,799 Speaker 4: That was fascinating and it was my pleasure. Thanks for 799 00:44:44,840 --> 00:44:45,520 Speaker 4: having me. 800 00:44:57,680 --> 00:45:01,760 Speaker 2: Tracy. I really like that conversation. Starting from the last point. 801 00:45:01,880 --> 00:45:05,120 Speaker 2: I do think we sort of many people take it 802 00:45:05,160 --> 00:45:08,520 Speaker 2: for granted that the US political system is an inherent 803 00:45:08,600 --> 00:45:11,560 Speaker 2: hindrance to any sort of planning, And I don't know, 804 00:45:11,560 --> 00:45:14,960 Speaker 2: maybe it is because of the specific pathologies of US 805 00:45:15,000 --> 00:45:19,080 Speaker 2: politics right now or the specific dysfunctions. Maybe it kind 806 00:45:19,120 --> 00:45:22,000 Speaker 2: of is. But I genuinely like the point about how 807 00:45:22,040 --> 00:45:27,400 Speaker 2: democracy at least per se isn't bad given, for example, 808 00:45:28,000 --> 00:45:30,560 Speaker 2: you know, the idea that there is some accountability for 809 00:45:30,640 --> 00:45:32,320 Speaker 2: some of these deals that we're making. 810 00:45:32,600 --> 00:45:36,200 Speaker 3: No, absolutely, I think the emphasis on political systems and 811 00:45:36,360 --> 00:45:40,360 Speaker 3: political capture or regulatory capture is a really good one. 812 00:45:40,680 --> 00:45:45,680 Speaker 3: And as Vivic pointed out, the idea of you know, 813 00:45:45,760 --> 00:45:50,800 Speaker 3: eighty percent of Americans feeling like the economy is overly 814 00:45:50,840 --> 00:45:55,200 Speaker 3: influenced by the elites or somehow captured by the wealthy, that's, 815 00:45:55,360 --> 00:45:57,440 Speaker 3: you know, that's a pretty damning statistic. 816 00:45:58,040 --> 00:46:00,600 Speaker 2: I do think, yeah, to your point, like, I don't 817 00:46:00,640 --> 00:46:03,840 Speaker 2: know what the polling is actually on whether the public 818 00:46:04,040 --> 00:46:08,040 Speaker 2: likes the idea of like EV investments or semiconductor manufacturing, 819 00:46:08,080 --> 00:46:10,920 Speaker 2: et cetera. But I do think that, you know, probably 820 00:46:11,080 --> 00:46:14,399 Speaker 2: to some extent you and I might sort of get 821 00:46:14,440 --> 00:46:17,480 Speaker 2: the case, but the general case about how it genuinely 822 00:46:17,520 --> 00:46:21,000 Speaker 2: redounds to the public benefit that we are picking winners 823 00:46:21,080 --> 00:46:24,040 Speaker 2: in these areas. You know, politicians do talk about jobs 824 00:46:24,080 --> 00:46:26,759 Speaker 2: and it's like, oh, this project created a thousand jobs here, 825 00:46:26,800 --> 00:46:29,960 Speaker 2: et cetera, And it seems like the congressmen and the districts, 826 00:46:30,239 --> 00:46:34,160 Speaker 2: even say Republican congressmen who opposed may have voted against 827 00:46:34,200 --> 00:46:37,440 Speaker 2: the IRA than how you know, the manufacturing that happens 828 00:46:37,440 --> 00:46:40,200 Speaker 2: in their district. So there's some of that, but it 829 00:46:40,239 --> 00:46:42,880 Speaker 2: does seem like the general story of like, Okay, this 830 00:46:43,040 --> 00:46:46,000 Speaker 2: is how we're spending public money and this is what 831 00:46:46,040 --> 00:46:50,080 Speaker 2: we expected to then deliver for the citizens in terms 832 00:46:50,080 --> 00:46:53,719 Speaker 2: of material benefits does not strike me as having been 833 00:46:53,760 --> 00:46:55,239 Speaker 2: particularly well articulated. 834 00:46:55,680 --> 00:46:57,839 Speaker 3: Uh No, I absolutely agree with you. Like I guess 835 00:46:57,880 --> 00:47:01,120 Speaker 3: there's always more that could be done. But if we're 836 00:47:01,440 --> 00:47:03,560 Speaker 3: gonna say, or if the government is going to say 837 00:47:03,680 --> 00:47:07,960 Speaker 3: that industrial policy is more important, clearly the experience of 838 00:47:08,000 --> 00:47:12,120 Speaker 3: the pandemic has exposed certain choke points in the economy 839 00:47:12,440 --> 00:47:16,040 Speaker 3: or certain areas that we deem strategically important that we 840 00:47:16,080 --> 00:47:18,960 Speaker 3: want to build up, then it makes sense to also 841 00:47:19,080 --> 00:47:22,080 Speaker 3: build up the accountability apparatus as well. 842 00:47:22,520 --> 00:47:24,279 Speaker 2: Can I just say one last thing? You know, I 843 00:47:24,320 --> 00:47:27,040 Speaker 2: get a little depressed when we talk about development or 844 00:47:27,120 --> 00:47:30,760 Speaker 2: industrial policy because of you know, there's so few success 845 00:47:30,800 --> 00:47:33,160 Speaker 2: stories that can you know, It's not like there was 846 00:47:33,280 --> 00:47:36,279 Speaker 2: a success story in Korea and then it went on 847 00:47:36,400 --> 00:47:40,040 Speaker 2: and be replicated in twenty other countries in Latin America, Africa, 848 00:47:40,200 --> 00:47:43,080 Speaker 2: you know, Eastern Europe and so forth. There's really only 849 00:47:43,280 --> 00:47:46,120 Speaker 2: a handful, and I don't know. It sort of brings 850 00:47:46,160 --> 00:47:50,960 Speaker 2: me down about the possibility of like generable lessons that 851 00:47:51,040 --> 00:47:54,319 Speaker 2: we can then extrapolate elsewhere, especially given also that for 852 00:47:54,400 --> 00:47:56,359 Speaker 2: all of you know that Korea had a lot of luck, 853 00:47:56,440 --> 00:47:58,759 Speaker 2: as our guest talked about, you know, with respect to 854 00:47:58,800 --> 00:48:01,600 Speaker 2: its relationship with Japan, in Japan wanting to outsource some 855 00:48:01,680 --> 00:48:05,080 Speaker 2: of its lower end production. It seems very difficult and 856 00:48:05,120 --> 00:48:07,719 Speaker 2: you need to get everything right, including the luck component. 857 00:48:07,920 --> 00:48:10,000 Speaker 3: You're right, Joe, K pop is very special. 858 00:48:10,160 --> 00:48:11,040 Speaker 2: That's right, all right. 859 00:48:11,080 --> 00:48:11,719 Speaker 3: Shall we leave it there. 860 00:48:11,840 --> 00:48:12,560 Speaker 2: Let's leave it there. 861 00:48:12,719 --> 00:48:15,799 Speaker 3: This has been another episode of the Audlots podcast. I'm 862 00:48:15,840 --> 00:48:18,680 Speaker 3: Tracy Alloway. You can follow me at Tracy Alloway and. 863 00:48:18,640 --> 00:48:21,080 Speaker 2: I'm Joe Wisenthal. You can follow me at the Stalwart 864 00:48:21,120 --> 00:48:23,759 Speaker 2: and thank you to our guest Vivike Chibber. Follow our 865 00:48:23,800 --> 00:48:27,160 Speaker 2: producers Carmen Rodriguez at Carmen armand dash El Bennett at 866 00:48:27,200 --> 00:48:30,480 Speaker 2: Dashbot in Kilbrooks at Kilbrooks. Thank you to our producer 867 00:48:30,520 --> 00:48:33,520 Speaker 2: Moses ondem And for our Oddlogs content, go to bloomberg 868 00:48:33,560 --> 00:48:35,759 Speaker 2: dot com slash Odlots, where we have a blog. 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