On Tuesday, Commerce Secretary Gina Raimondo unveiled a key new plank in the work-in-progress known as American industrial policy. After a decades-long trade regime that permitted private oligopolies to decide where and how to produce semiconductors, the Commerce Department launched a $39 billion incentives program to give grants, loans, and other financial support to businesses and nonprofits to build chip fabrication facilities in America.
The move is notable for several reasons. First, it seeks to bring home an industry that had moved almost completely overseas. The US economy has long been a de facto incubation hub for global manufacturing, developing new industries here that often move offshore in search of cheaper labor and supply chains. It’s far less common for manufacturers to rebuild this lost capacity—and especially so for an essential sector such as chip making; usually such efforts are confined at best to a few niche facilities to meet critical national security needs.
The Biden White House’s focus on semiconductors is no accident. In an age of digital manufacturing, chips are used in almost every other industry—much as energy products are. Also like energy, semiconductor production is extremely capital-intensive. Only companies with the deepest pockets can expect to compete, and in almost every case, the top-line chip makers benefit from ongoing support from the public sector to operate at scale. As social scientist Chris Miller writes in his new book, CHIP War, early US government support through research grants and guaranteed purchases directly subsided the initial rise of the semiconductor industry. Likewise, support from Asian governments—chiefly Taiwan, Japan, Korea, and China—is what sustains the chip industry today. Biden’s economic team recognizes that any country that’s serious about building out its domestic production capacity must rely on massive infusions of public support in the United States.
But just as important as the “what” is the “how.” Unlike the stereotypical view of industrial policy as a species of “corporate welfare”—i.e., corrupt and condition-free check-cutting by governments to profitable firms—the CHIPS for America outlays will prioritize firms that adopt business strategies to create hundreds of thousands of high quality jobs and genuine innovation. The initiative also includes substantial pro-labor provisions that will help unions build power—such as compliance with Davis-Bacon rules that require firms to pay at least as well as the prevailing wages in the region in which the investment is taking place, and promoting collective bargaining in the workplace through project labor agreements.
In another first, CHIPS funding will require companies to provide high-quality child care for semiconductor and construction workers. This is a long-overdue effort to address acute gender disparities and ensure family-friendly protocols in semiconductor manufacturing. The administration continues to push for congressional action on this front, but in the meantime, it’s using its own administrative authority to create enhanced opportunities for workers with care-giving responsibilities. As Lee Harris has written for The American Prospect, these worker supports are not “add-ons” to the chip manufacturing work; rather, they are direct ways to unblock labor shortages and deliver projects on time and under budget.
The CHIPS plan is also just one among several signature programs in the new industrial policy. The Biden administration is promoting made-in-America supply chains for the ambitious projects approved under the Inflation Reduction Act and the infrastructure overhaul. This is part of a place-based strategy that includes massive investments in red districts and development of at least two large geographic clusters of semiconductor fabrication plants, suppliers, and universities that are built to outlast their direct CHIPS program support. Behind all these projects is the critical realization that manufacturing doesn’t exist in a bubble; in order to be competitive, it must rely on fundamental worker protections such as collective bargaining and service-sector bulwarks such as subsidized child care and family leave. And it needs to help create and sustain a favorable political climate for ongoing economic development that doesn’t whipsaw with the results of every election.
Among other things, this recognition is a striking departure from the neoliberal policy objectives of Clintonomics in the 1990s. Then, the architects of the new global economy ripped away these kind of baseline protections in the manufacturing sector via the North American Free Trade Agreement and the Uruguay Round of trade talks. Such moves were rationalized under the vague expectation that displaced workers would eventually go into higher-paying service-sector industries like coding. In contrast, the CHIPS plan reinforces the connection between service and manufacturing work, while seeking to ensure a revived manufacturing sector remains an attractive destination on its own terms for workers in a tight jobs economy.
The CHIPS plan also represents a dramatic rethinking of shareholder incentives. The longtime Wall Street mantra placing shareholder value above all has wreaked havoc in American manufacturing, sparking a long regress of stock buyback plans at the expense of longer-term plant maintenance and innovation. What economists designate by the shorthand term “innovation” is actually the product of long-term collaboration and institutional knowledge—signal practices that gain redoubled strength with collective public investments. By contrast, shareholders mainly trade amongst themselves to get provisional control of companies with publicly traded equity. That means that the money devoted to financial instruments like stock buybacks directs equity away from the company itself, and toward the share-seller who trades them. The lead semiconductor makers have all fallen prey to this predatory market logic: The largest semiconductor companies—Intel, IBM, Qualcomm, Texas Instruments and Broadcom—spent 71 percent of their net income on stock buybacks alone from 2011-2020, totaling $249 billion.
In her Tuesday announcement, Raimondo made clear that companies getting CHIPS financing must refrain from using it for buyback deals. She also said that companies receiving CHIPS funds will be treated more favorably if they refrain from stock buybacks for at least five years. This is an important step: It will not only potentially prod semiconductor companies toward greater innovation; it also sends a wider signal from the White House that shareholder primacy has hurt American productivity.
The program also seeks to bolster another lagging source of innovation in American industry: research and development. The new CHIPS rules require companies that get more than $150 million in funding to share excessive financial returns (beyond the company’s own projections) with the government. Trade officials will then plow the funds back into the program’s own lending (giving it a bit of breathing room from the temperamental congressional appropriations process).
These are, of course, early days in the ambitious campaign to revive American industrial policy—and the vanguard work of the CHIPS plan will depend in large part on the discretion of loan officers charged with implementing it. Anti-government detractors will scrutinize the initiative for any signs of delay. And while the Covid pandemic and the climate crisis should have laid to rest the guiding conceits of Clintonomics, zombie neoliberalism still stalks the earth. Recent stories in The New York Times, The Washington Post, and Financial Times, for instance, harp on how the Biden industrial plan must live up to traditional classical economic benchmarks like efficiency and free trade dogma, rather than reversing the decades-long plague of manufacturing flight and instituting real social resilience within the American political economy. No doubt much is at stake in the promulgation of the new CHIPS rules—but if they succeed, there will also be much to celebrate.