hollow states

Image: Alexey Demidov


In societies governed by liberal democracy, effective discipline over corporations can only come from external popular pressure as opposed to business lobbies.

The return of industrial policy is a strong trend, as it is catalyzed by the cumulative shocks of Covid-19 and the war in Ukraine, as well as long-term structural issues: the ecological crisis, faltering productivity and alarm over dependence on Western countries. of China's productive apparatus. Together, these factors have steadily undermined governments' confidence in the ability of private enterprise to drive economic development.

Of course, the “entrepreneurial state” has never gone away, especially in the US. The deep pockets of the Defense Advanced Research Projects Agency and the National Institutes of Health have been crucial in maintaining this country's technological edge – funding research and product development over the past few decades. Still, it is clear that substantial change is already taking place.

As a group of OECD economists noted, “so-called horizontal policies, ie government provisions accessible to all companies, which include taxes, product or labor market regulations, are increasingly being questioned”. Instead, "the argument is gaining strength that governments should act more actively in the structure of the business productive sector". Hundreds of millions of funds are now being directed to companies in the military, high-tech and green sectors on both sides of the Atlantic.

This pivot is part of a broader macro-institutional reconfiguration of capitalism, in which a tighter post-pandemic economy has further constrained labor markets, while the centrality of finance has begun to be questioned. These phenomena are highly complementary: public funding stimulates the economy and can boost job creation, while managerial allocation of credit serves as an admission that financial markets are incapable of fostering the investment needed to address major cyclical challenges.

On a very general level, this neo-industrial turn is to be welcomed, as political deliberation can now play a slightly larger role in investment decisions. More concretely, though, there's a lot to worry about. At this stage, we can identify at least three problematic dimensions.

The first is the magnitude of this shift itself. Although the amounts are significant, they do not correspond to the civilizational challenges we are facing – they fall far short of what is needed to implement a complete restructuring of the economy, as required by the climate breakdown. This is particularly true in Europe, as it now has chronic structural vulnerability due to self-inflicted austerity measures – currently renamed “fiscal adjustment paths” – and deepening divisions between the core and the periphery.

The geopolitics of industrial policy is especially problematic in the context of the European Union's single market. Friedrich Hayek – it is worth remembering – was a strong advocate of federalism precisely because he knew that such a union would create serious obstacles to state intervention. Reaching agreement now at the federal level to support a particular sector is exceptionally difficult because of divergent national interests, themselves the result of productive specialization and uneven development.

At the national level, on the other hand, the relaxation of provisions relating to state aid tends to arouse resistance from weaker Member States, who fear that countries with greater fiscal space – in particular Germany – will be able to improve their competitive advantage. , further aggravating the polarization within the European Union.

Since its entire building was built on the premise that competition is sufficient to ensure economic efficiency, there is no technical-administrative capacity to apply industrial policy. Meanwhile, on the other side of the Atlantic, austerity had similarly damaging effects on state capacity. Asked about the viability of Joe Biden's program, Brian Deese, former director of the National Economic Council, elaborated cautiously: "The problem boils down to the professionalism of the public service at the federal level and at the state and local levels - many of which have been deflated" .

Second, the content of this neo-industrialism is quite worrying. The choices currently being made about the direction of financing will shape the productive structure for decades to come. On the ecological front, the main issue is that these finances are almost exclusively conceived as grants to green institutions and the production of traditional commodities, rather than reorienting the economy around sustainability.

The automobile industry is an example. Ideally, green policies should develop multimodal transport solutions, giving a limited role to small, electrified vehicles. However, that would imply a drastic downsizing of the automotive sector – something unthinkable for profit-oriented automakers, who are pushing for fully electrified SUVs, which provide high profit margins.

To reconcile increased productivity with environmental imperatives, industrial policy would need not only the resources to support structural change, but also the means for state planners to discipline capitalists. The lessons of post-World War II developmentalism drawn by Vivek Chibber remain valid: companies understand industrial policy as “the socialization of risk, leaving intact the private appropriation of profit”. They therefore vehemently resist “measures that give planners any real power over their investment decisions”.

Another qualitative issue is the global increase in military spending. In the absence of what Adam Tooze calls “a new security order based on accommodating China's historic rise”, we have entered a New Cold War with the daunting potential of spreading beyond the Ukrainian theater. While some companies have a lot to lose from a confrontation with China, others stand to benefit.

Along with the military-industrial complex, Silicon Valley corporations are deliberately stoking fears about China's artificial intelligence (AI) capabilities, hoping to secure public support for their activities and block access to foreign allied markets. This created a mutually reinforcing relationship between private profit-seeking and state power, in traditional imperialist fashion.

The third problem involves the balance between social classes. In his newly published book L'Etat droit dans le mur [The State on the Wall], Anne-Laure Delatte interrogates the economic roots of the decline in state legitimacy. She argues that, in France as elsewhere, rising taxes on households – most of them regressive – have been accompanied by increased public spending to benefit businesses. This created a vicious state, largely oriented towards the financial sector, and a general population increasingly distrustful of public policy making.

Today, it's easy to see how an ambitious industrial policy could exacerbate such pro-corporate biases. Asset managers are especially eager to take advantage of the new rentier opportunities arising from state-backed infrastructure investment. Without raising corporate taxes and capital income, and without making industries directly public property, state subsidies imply a transfer of resources from labor and the public sector to capital, exacerbating inequalities and resentments.

The West's adoption of industrial policy is explicitly motivated by Chinese productive prowess. However, the uniqueness of China cannot be overstated. There, state capital is dominant thanks to public ownership in strategic sectors and upstream of the economic structure – that is, the “dominion of the summits” in Leninist terms. In addition to enjoying formal property rights over key assets, a highly specific form of state-class organization allows the CCP to exercise some control over the country's overall development path.

Its culture of internal discipline is crucial to assigning politicians dual identities as masters of capital and servants of the party-state. This provides a solid foundation for public planning, allowing private accumulation to coexist with market-shaping forces such as credit and purchasing policies. The CCP's public-private network is also highly adaptable, allowing the government to implement major policy changes relatively quickly. After the 2008 financial crisis, policy instructions were immediately given to party members in anticipation of the massive state stimulus package, resulting in a much faster and more effective fiscal response than in the US or the EU.

In societies governed by liberal democracy, by contrast, effective discipline over corporations can only come from external popular pressure as opposed to business lobbies. Thus, for popular organizations and left-wing parties, the neo-industrial turn is good news only insofar as it gives new impetus to old concerns: who decides where the money goes? What are your goals? How is it used? – whether or not it is misused. Perhaps, by helping us to formulate such questions, neo-industrialism ends up exposing the inadequacy of its own answers to the sun.

*Cedric Durand is a professor at the University of Sorbonne Paris-North. Author, among other books, of Techno-Féodalisme: Critique de l'économie numérique (Discovery).

Translation: Eleutério FS Prado.

Originally published on the magazine's blog New Left Review.

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