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The Great Antidote: Extras: Samuel Gregg on National Security and Industrial Policy
When government officials pick winners and losers people are poorer and less secure. Kevin Lavery listens in to Samuel Gregg and Juliette Sellgren and offers up lessons on what can happen when national security is badly used as justification for industrial policy.
Industrial policy is back in style. Nations around the world are trending towards industrial policy, despite its inefficiencies. From the Inflation Reduction Act and Operation Warp Speed to the Chinese government’s ‘Made in China 2025’ initiative, policymakers are actively scaling up government involvement in the economy. Proponents of industrial policy argue it is necessary to ensure national security in an unstable and combative geopolitical age. With economic freedom on the decline, is there hope for the comeback of liberalism in an increasingly adversarial and protectionist world economy?
Listed to the podcast here: Samuel Gregg on National Security and Industrial Policy
Samuel Gregg argues that industrial policy is a failure, both in producing economic growth, and in maintaining national security, while offering advice to free marketers in pitching laissez-faire economics. Samuel Gregg is the Friedrich Hayek Chair of Economics and Economic History at the American Institute for Economic Research. Gregg is the author of seventeen books, including The Next American Economy, and Reason, Faith, and the Struggle for Western Civilization.
Industrial policy oftentimes is not grounded in sound economic theory but instead garners support through expressive appeal - tariffs are justified through the guise of protecting American jobs. Gregg finds that industrial policy has been shown to fail not only in the pages of economic journals, but even in the very case studies proponents of industrial policy cite.
Industrial policy oftentimes is not grounded in sound economic theory but instead garners support through expressive appeal - tariffs are justified through the guise of protecting American jobs. Gregg finds that industrial policy has been shown to fail not only in the pages of economic journals, but even in the very case studies proponents of industrial policy cite.
[M]ost of these policies have failed including in the historical examples that they cite. And I think that's important because if you can show that these policies have been tried before in different parts of the world, including in the United States and that they have, and we have lots of empirical evidence and historical evidence, evidence that they don't work, then you can supplement the economic theoretical arguments with empirical and historical information that's accurate and true.
Industrial policy has been a common feature among national economies around the world at various stages of development, and under different political systems. Gregg states that even when the case for free markets had seemingly won out, industrial policy was still popular. Why? Gregg argues that industrial policies are popular because many people want the government to step in to correct unfair market outcomes and interest groups are guarding their interests.
So that impulse, that self-interested impulse, in many cases we find manifesting itself in lobby groups, in particular industries, trying to persuade political leaders that they need to support them for ostensibly in the interests of the general welfare or the common good, but which in on closer examination is actually all about trying to bolster their own position against present day and future competitors.
Many of these interest groups come from the national security realm. For instance, the rise of China has prompted the United States government to turn to industrial policy, such as the CHIPS Act in order to maintain national security. Gregg finds that classical liberals, including Adam Smith, do indeed emphasize national security as a relevant concern, and acknowledge that state intervention is occasionally necessary to ensure security.
That being said, Gregg believes national security is dependent upon a strong economy, as a country cannot build or maintain a competent military without the necessary resources. He points to open trade, the rule of law, and private property as the institutions most likely to produce robust economies. Industrial policies which misallocate resources or hamper growth reduce national security.
That being said, Gregg believes national security is dependent upon a strong economy, as a country cannot build or maintain a competent military without the necessary resources. He points to open trade, the rule of law, and private property as the institutions most likely to produce robust economies. Industrial policies which misallocate resources or hamper growth reduce national security.
If you're thinking about national security concerns,[one of the many problems of industrial policy] is that it actually degrades a country's economic growth. Industrial policy leads to massive misallocations of capital throughout the economy. It invites problems of cronyism and even corruption, et cetera. And all those things mitigate against the capacity of a country to establish and maintain and grow a high level of economic growth.
Many policymakers disagree. Despite the input of the World Trade Organization and International Monetary Fund, free trade has been on the decline. Heads of state are increasingly adopting mercantilist trade policies, focused on reducing trade deficits, retaliatory tariffs, and protecting domestic industry at the expense of other nations who are seen as competitors instead of partners. To Gregg, free marketers are overly reluctant to adapt to the diminishing presence of liberalism in the world economy, and consequently, the ushering in of an era of geopolitical competition as opposed to cooperation.
To pretend that we're living in 1991, I think is a mistake for free marketers. It's also a mistake for free marketers to assume that liberal democracy and economic freedom more generally is sort of inevitable. I think for the most part, free marketers understand that and have. What we're all struggling with now is how we advance these things in a world that's much more like the 19th century than the period of the 1990s.
Gregg adds that industrial policy is a byproduct of nationalist economic policy, which nations use to antagonize each other. In other words, industrial policy weakens allyship between trading partners, which harms national security for a couple reasons. One is that nations with less allies are more vulnerable to attack, A second is that strained economic relationships bleed into geopolitical conflicts. But Gregg makes it clear that geopolitical conflict does not prevent the possibility of liberalization. Gregg points to Great Britain and the United States’ relationship during the late 1800’s as an example of how open trade contributes to amicable international relations.
It's not surprising that Britain and America had this very bad relationship. And it's not surprising also that when the United States started to liberalize some of its trade policy towards the end of the 19th century and into the early 20th century, that relations between the United States and Britain improved. So, I mean, I could go on, but I do think that in the end, industrial policy doesn't promote national security. It actually undermines it.
The example of Great Britain and the United States shows how trade liberalization can be a vehicle for peace between nations. To Gregg, this argument is necessary for free marketers to bring back laissez-faire economic policy. Economic liberals must be able to present the myriads of ways in which economic liberalization contributes to national security.
Gregg’s overarching point is that nations are the safest and the wealthiest when individual freedom is respected, and open trade is unleashed. Instances of industrial policy failure occur because governments lack the requisite knowledge to “fix” perceived inefficient resource allocation. Industrial policy is often the result of self-interested actors taking advantage of the egalitarian and patriotic passions of individuals. Gregg finds industrial policies pick winners and losers but freer markets benefit all.
More from Samuel Gregg
Samuel Gregg on The Next American Economy, at The Great Antidote (with a Great Extra too)
Samuel Gregg on Christianity and Liberalism at The Great Antidote
Industrial Policy Mythology Confronts Economic Reality, by Samuel Gregg at Law & Liberty
Protectionism’s Endless Confusions, by Samuel Gregg at Law & Liberty
Samuel Gregg on The Next American Economy, at The Great Antidote (with a Great Extra too)
Samuel Gregg on Christianity and Liberalism at The Great Antidote
Industrial Policy Mythology Confronts Economic Reality, by Samuel Gregg at Law & Liberty
Protectionism’s Endless Confusions, by Samuel Gregg at Law & Liberty
Related Great Antidote Episodes
Douglas Irwin on Talking about Trade and Commerce
Christine McDaniel on Trade: A Tale of Two Presidents (Be sure to check out the Extra as well!)
Colin Grabow on the Jones Act Part 1 & Part 2
Sikha Dalmia on Nationalism
Ryan Yonk on the China Dilemma
Chris Coyne on Manufacturing Militarism
Douglas Irwin on Talking about Trade and Commerce
Christine McDaniel on Trade: A Tale of Two Presidents (Be sure to check out the Extra as well!)
Colin Grabow on the Jones Act Part 1 & Part 2
Sikha Dalmia on Nationalism
Ryan Yonk on the China Dilemma
Chris Coyne on Manufacturing Militarism
More content!
Adam Smith and International Relations and Adam Smith, Hugo Grotius, and International Law, by Edwin van de Haar at AdamSmithWorks
Do Not Take Peace For Granted, byAlice Temnick at AdamSmithWorks
A Pro-Market and Pro-Social Economy, by Brent Orrell and David Veldran at Econlib
Industrial Policy Isn’t About Jobs, by Veronique de Rugy at Econlib
Michael Munger on Industrial Policy, an EconTalk Podcast
Adam Smith and International Relations and Adam Smith, Hugo Grotius, and International Law, by Edwin van de Haar at AdamSmithWorks
Do Not Take Peace For Granted, byAlice Temnick at AdamSmithWorks
A Pro-Market and Pro-Social Economy, by Brent Orrell and David Veldran at Econlib
Industrial Policy Isn’t About Jobs, by Veronique de Rugy at Econlib
Michael Munger on Industrial Policy, an EconTalk Podcast
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