Who’s Afraid of Industrial Policy?

Who’s Afraid of Industrial Policy?

We shouldn’t pass up a chance to enlist the auto industry in a green transition.



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.

Robert Pollin, an economist at the University of Massachusetts, points to the $9 billion for public transportation that was included in the stimulus package in February as one way to begin that transition. “Public transportation in most places is terribly inconvenient. Putting in more bus lines is environmentally positive, it creates jobs and it reduces the cost of living for working people. The first thing to do is put more buses on the street, and that could be a major source of expansion for the auto industry over the next three to five years.”

There may be even more opportunities in retraining autoworkers and refitting factories for use in renewable energy production, where the United States lags far behind competitors in Europe and Asia. Opinions vary as to whether the existing skills and equipment in the auto industry are a good match with those necessary for renewable energy production, and there are as yet no good data on how easily, say, a transmission plant in Detroit or windshield manufacturer in Toledo could start making solar panels or engines for wind turbines. But letting the opportunity pass would be a costly mistake. “Public transportation and renewable energy products are going to be manufacturing focal points of the next generation of the global economy,” says Pollin, “and the US is going to need to devise an industrial policy to become competitive. The notion of the US not having a presence in that market is not good at all.”

The upside, meanwhile, may be substantial. In the Great Lakes region, renewable energy development could be crucial to the future of many working-class communities that depend heavily on the auto industry for jobs and local revenues. In Cuyahoga County, Ohio, the Great Lakes Wind Energy Center is studying the feasibility of putting three to seven windmills three miles off the shore of Lake Erie, where reliably strong winds are perfect for energy production. According to George Sterzinger of the Renewable Energy Policy Project, the total offshore wind potential in the Great Lakes is around 250,000 megawatts–about ten times the nation’s currently installed offshore capacity–which could generate a huge local industry in wind energy and related manufacturing. “Estimates place the market for offshore wind at $500 billion,” Sterzinger says, and if developed it would create an equally large market for component parts like motors, gearboxes and giant blades, much of which could be supplied locally. “Those parts could come from places like Cleveland and Detroit.”

To Dianne Feeley, who spent ten years working in an American Axle plant in Detroit, such ideas are hardly farfetched. “Plants shouldn’t be allowed to shut down; they should be reorganized,” she says. “The kind of restructuring they’re talking about now, that’s been going on for thirty years, and it’s only been successful at reducing the workforce and speeding up the work.” When Feeley started at the plant, it employed 2,000 workers; by this summer there will be fewer than 250. Although she is retired, her frustrations led her to join a group of UAW rank-and-file activists called the Auto Workers Caravan, which has been lobbying Congress to prevent further job cuts and “establish a national industrial policy that will direct, plan and finance the transformation of the auto industry’s existing capacity.”

This three-pronged approach to protecting autoworkers’ jobs–fuel-efficient automotive production, public transportation and renewable energy–can be a model for the green manufacturing economy of the twenty-first century. Much experimentation will be needed to determine the innovation, skill training and capital investment necessary to make these industries competitive. But that’s what national industrial policies are designed for–to nurture high-value industries, protect industries from the downward pressure created by global competition and guard against unsustainable trade imbalances, like the one that fueled the American system of debt-financed consumer spending that has plunged the world into recession.

High wages and healthy workers are also essential to any robust manufacturing economy. A new industrial policy should include a healthcare system to free businesses from a significant competitive disadvantage with employers in other industrialized countries, and to protect workers against the sudden disappearance of employer-provided benefits in times of crisis. Likewise, it ought to include a commitment to supporting strong unions–both in older, declining industries and in the new green sectors–which have a stabilizing effect on the overall economy by keeping demand high and productivity steady.

In the end, whether or not the Big Three survive the crisis is less important than making sure that there will be an alternative for the millions of working Americans who still depend on the industry for their livelihoods. “We shouldn’t even be talking about saving the auto industry,” Feeley says with disdain. “Saving the auto industry won’t give us jobs, won’t put us on the right track for a climate that we need, won’t help our cities. The strategy needs to be about how to save the working class and our communities.”

So far, that is not a strategy the Obama administration has rushed to embrace. The more ambitious thinking by Feeley and others has remained largely below the surface in the discussion about what to do with the struggling auto industry. But good ideas often find a way to trickle upward. As the recession continues to demonstrate the costly effects of allowing our once-vital manufacturing economy to wither in the face of global competition, the challenge for the labor movement and the left will be to keep pressing for economic solutions that are driven by what’s good for workers and the environment, not for financial markets. We’ve seen where fifty years without a coherent industrial policy has gotten us; it’s time for a new program.

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