Who's Afraid of Industrial Policy?

When President Obama announced Chrysler's bankruptcy filing, on April 30, as "one more step on a clearly charted path to Chrysler's revival," even the most Pollyannaish of observers must have done a double take. Plagued by years of declining international competitiveness and now the worst economic downturn in three-quarters of a century, Chrysler, General Motors and even the temporarily healthy Ford have no clear path to recovery. And with much of the public discussion about how to "save" the industry focused on slashing workforces, eliminating surplus productive capacity and ditching obligations to current and retired employees, one could hardly expect autoworkers to share the president's optimism. "Our marching orders were to do both Chrysler and GM the way we would do a strictly commercial deal," an unnamed member of the Treasury Department's Auto Task Force told the New York Times, with the martial tone and menacing verb "do" sounding an awful lot like they were borrowed from Jack Welch's lean-and-mean corporate playbook of the 1980s.

As the once-mighty United Auto Workers swallowed concession after concession, UAW president Ron Gettelfinger tried to sweeten the bitter pill with promises that the union would be around to "fight another day." But the obvious question remained unanswered: fight for what, exactly? For the labor movement and the left, the answer is critical. If crisis breeds opportunity, then there has rarely been a better moment to tie the future of the domestic auto industry to the imperative of building a green economy. We need a bold industrial policy aimed at bridging the gap between older industries and emerging ones, revitalizing the moribund manufacturing sector, supporting an economy based on high-wage union jobs and attending to the crucial climate concerns that impact us all.

Though Obama has been visionary in his rhetoric about building a future around clean energy and green jobs, his administration has stopped far short of embracing such an agenda in response to the collapse of the auto industry. There are many reasons for this, but perhaps most salient among them is the persistent grip of a free-market ideology that has made the very idea of a national industrial policy infeasible (if not vaguely treasonous) for much of the past half-century. While not hardline free-market dogmatists, Obama's closest advisers are proponents of behavioral economics, which envisions a world of mostly free markets that require only minimal government interference to avoid crises and provide people and industries with helpful "nudges" (a favored phrase in behaviorist parlance).

That ideological bias has been much in evidence in the government's approach to dealing with Chrysler and GM. The Obama administration made clear it wanted no direct role in overseeing the two companies, instead offering them incentives to transition into making more fuel-efficient cars that can compete globally while doing less harm to the environment. The administration even went so far as to "nudge" Chrysler into a merger with the Italian automaker Fiat, the success of which may rest on a forty-mile-per-gallon car that is supposed to be ready in two and a half years. In both cases, the idea is that with a little help from the government, the markets will be able to take care of the rest.

The benefits of developing greener automotive technologies are substantial, and if Chrysler and GM can return to profitability by abandoning inefficient trucks and SUVs, the administration may feel that it has done enough by prodding them in that direction. But a more comprehensive restructuring of the industry will require more than a light hand from the government. Taking fuller advantage of the moment will mean breaking once and for all with the narrow logic of the market, and creating a bigger and more permanent role for the government in revitalizing the industrial economy.

Even after decades of downsizing, the auto industry still accounts for 25 percent of US manufacturing output. It provides jobs to about one out of every ten manufacturing workers, either directly or through a chain of parts makers, suppliers and related industries that support local economies in wide swaths of the country beyond Detroit. Says AFL-CIO economist Ron Blackwell, "The auto supply chain is the spine of the country's manufacturing capacity," made up of large firms like Delphi and American Axle, which supply parts directly to Big Three assembly plants, and an intricate network of smaller, highly specialized second- and third-tier components makers that are the often anonymous victims of the auto crisis. "If you let the spine break, then it is going to be all that much more difficult to repair our manufacturing capacity," Blackwell says.

A plan for saving that spine will have to reflect creative thinking about how to preserve the wealth of skilled labor and productive capital that is at risk of disappearing. The Obama administration has made substantial investments in developing the country's neglected public transportation and renewable energy capacity, which could be crucial to the future of domestic manufacturing. During World War II, the Roosevelt administration helped keep workers on the job and factories humming at full capacity by buying tens of thousands of planes and tanks from a quickly retooled auto industry. Today's planes and tanks could be the buses, subway cars, trains and light-rail cars that would spur the development of new systems of mass transit and help shift the country away from its unsustainable carbon dependency.

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