Friday, December 19, 2008

Bailout fever, ROC style

Andrew Leonard of Slate tells us that the five major chip manufacturers in Taiwan are looking for a Detroit-style bailout, and the pro-and-con arguments are virtually identical to the one we've been enjoying here (with Korean competitors taking the place of Honda, Toyota, etc.). But Leonard points out one major difference, and it's connected to a point I've made before.

Our insistence in this country on laissez-faire for, well, everything has had consequences beyond the obvious lack of regulation of the financial markets. Our motto for close to 30 years is that government should not be in the business of picking winners in technology or business, that the maximum it can do is to create the level playing field (and we know how well that's worked) that business demands. (Actually, that's a total lie, businesses want their competitors to play on the level playing field, but they want to be allowed to perch way up the hill; hence, the explosion of lobbying and campaign contributions.) We have so feared the cries of mercantilism that we have gone the other way, aspiring to a total lack of government involvement.

Other countries have not been so timid. China, India, and their fast-growing brethren, their governments set goals, national objectives that they backed up with money and educational support. Instead of hoping that young people would decide to go into engineering, as the U.S. has done, China created a climate in which engineering would be seen as desirable, ensuring that careers would be positive and lucrative. None of this was a major gamble: India's decision to push computer science didn't come in 1935 when it would have been a huge risk, only after it was clear that it would be a growth field in which people (and the country) would do very well.

Unsurprisingly, Taiwan did the same thing with semiconductors:
Taiwan's status as one of the world's great hubs of high-tech manufacturing is no accident of market forces. It is the result of canny policy -- government incentives, tax breaks, and close linkages between the government and the private sector. By virtually any standard, it's been a phenomenal success. Decades ago, both government officials and private entrepreneurs realized that Taiwan's best bet to thrive in a highly competitive global economy would be go all in on high technology. The gamble worked.

Therefore, bailing out domestic chipmakers in Taiwan doesn't have to be seen in the same divisive political terms that bailouts in the United States get plugged into. There is a tradition in Taiwan of making strategic decisions for the benefit of the whole economy, and it is on that basis that one presumes the government is currently evaluating its options.
This is a direct contrast to the United States, where even the hint of an industrial policy is treated with disdain if not disgust. Even the move to green technology is supposed to happen through "incenting" private industry through tax breaks or credits or rebates. It's a very passive approach, and we're so accustomed to thinking that way that we can't even imagine any other way:
In the U.S., however, the very idea of industrial policy has been so stigmatized by decades of market fundamentalist ideological domination that the only time strong intervention in the economy becomes palatable is when the economic circumstances are so dire that to do nothing is obviously more disastrous than doing something, even if there is no carefully thought out strategic blueprint to work from.

So now the U.S. is in the position of being forced to bail out an industry -- automakers -- that has consistently failed to position itself strategically vis a vis the future, while Taiwan is mulling over the benefits of helping out companies that are smack dab in the middle of the 21st century. By ruling the very concept of industrial policy out of hand, the U.S. has maneuvered itself into a quagmire where all it can do is flail about while reacting to the possibility of imminent disaster.

If this isn't frightening to everyone in this country, then we aren't paying attention.

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