Conservatives are misguided in embracing big government industrial policy

A conservative argument for big government manufacturing policy is akin to a vegetarian’s argument for eating meat: It’s an oxymoron. Despite the constant push from big-government Democrats and Republicans alike, conservatives have long championed the idea that economies work best without the heavy hand of government forcing its will on the people.

Unfortunately, several self-professed conservatives on Capitol Hill would rather believe that, as long as the right leaders are in charge, a top-down approach that empowers government will restore manufacturing capacity in the U.S. and be good for America. It just ain't so.

The reality is that government is largely to blame for the economic situation we see in the Rust Belt and in other places across the U.S. where industry has suffered and jobs were shipped overseas. Burdensome regulations, crippling taxes and rising inflation have forced small businesses and American industry to make hard decisions. 

Yet recently, Sen. Marco Rubio (R-Fla.) laid out his own "conservative case" for industrial policy that will do nothing more than allow bureaucrats in Washington to decide what American workers need and then to pick winners and losers in the American economy.

It is critical for conservatives to get this right. Contrary to Rubio’s claims, those of us who support free markets do care about industrial strength. Manufacturing matters. But industrial policy of the type pushed by Rubio has failed and will continue to fail. It allows bureaucrats to favor specific industries, misallocating resources and forcing companies to invest in lobbying and political influence rather than jobs and productivity. It puts taxpayers on the hook for bad investments that cannot sustain themselves without continued bailouts or investments that would have happened anyway — often at cross purposes to other government policies or else for explicitly political purposes.

The direct costs of subsidies, regulation and bureaucratic control are compounded by the loss of jobs, wages and investment that would have occurred if those dollars were invested by the private sector in economically sustainable ventures. This is why industrial policy has failed repeatedly. One need only look to the massive industrial policy failures of South Korea, Germany and China — particularly the latter’s infamous E.V. graveyards, the result of subsidy and the consequent overproduction and lack of demand.

But one can also simply look to our own past in the United States. Conservatives likely do not need to be reminded of the billions of dollars wasted on companies such as Solyndra during the Obama administration.

Bidenomics, which Rubio himself has criticized heavily, is industrial policy in its purest form. It, too, has unquestionably failed to increase manufacturing output. In fact, a recent report from the Tax Foundation found that, despite the massive taxpayer subsidies provided in the Inflation Reduction Act and CHIPS Act, “relative to the CBO’s projections as of May 2022, nonresidential private fixed investment growth in aggregate has not outpaced projections.”

Additionally, the massive subsidies for electric vehicles from the Inflation Reduction Act are failing to meaningfully boost EV sales as consumers find the products expensive and unreliable. Tesla recently announced a 10 percent cut to its workforce due to sluggish demand for electric vehicles. 

To his credit, Rubio does not claim that Biden’s industrial policy has been a success. He argues that the government needs to get “serious about deregulation and permitting reform to create a competitive business environment where industrial policy can actually work.” But therein lies the problem. Industrial policy cannot exist without increased government involvement, which in turn paves the way for the very overregulation that Rubio is complaining about. That overregulation costs the average manufacturer and small manufacturer $29,100 and $50,100 per employee, respectively. 

The data are clear: Government is very good at spending taxpayer money, but it is very bad at turning that spending into real, sustained manufacturing investments that benefit American workers.

A great example of this is the CHIPS Act, which Rubio wisely voted against. It is already failing to deliver on the promises of its backers as multiple firms have delayed promised expansions. Because companies have been forced to invest in radical DEI initiatives and subjected to other regulatory bottlenecks, promised investments are being delayed or moved to other countries.

Conservatives believe the American economy will work and grow if government would just get out of the way. So why don't they just practice what they believe?

Rubio concluded his puzzling argument by noting that “this won’t be easy, especially as long as Biden and his allies in Congress put the interests of lobbyists and activists above those of the nation.” Unfortunately, there is no difference between Biden and any other politician or leader when it comes to picking winners and losers in the marketplace. Regardless of party, industrial policy will always create an environment where preferred industries — or those with the most powerful lobbyists — will prevail at the expense of economic growth.

While big government industrial policy is doomed to fail, the freeing of manufacturers from the Washington's tightening grip can meaningfully boost industrial investment and raise wages for American workers. Free-market reforms to taxes, regulation, energy, infrastructure, and education will reduce the size and scope of government and can supercharge American manufacturing, allowing business and industry to grow, return, and invest in the U.S.

David McIntosh, a former Republican congressman from Indiana, is president of the Club for Growth Foundation.