Mitt Romney and Industrial Policy

There’s a debate going on about whether Mitt Romney has committed conservative apostasy (either in absolute or relative-to-Huckabee terms) by proposing to assist the auto industry .

I think that it’s important to note that two issues are bound up in Romney’s proposal: helping the auto industry and responding to global warming. Part of Romney’s proposal is to reduce existing or proposed burdens placed on the auto industry (i.e., increased CAFÉ standards and a CO2 cap-and-trade emissions abatement regime) that are intended to address global warming, and to use research investments to address global warming instead. I believe that this portion of his program is unambiguously good.

When you look at the specifics of the other part, what he proposes to do to help the auto industry, the atmospherics are ominous (“roll up our sleeves”, “100 days”, etc.), but the actual policy proposals other than targeted research (reduced corporate taxes, personal accounts for workforce training, improved schools, careful negotiation of trade agreements, etc.) are actually non-industry-specific and seem like pretty smart ideas to me. The big open question, of course, is the non-global-warming component of the $16 billion per year increase in research. It’s hard to evaluate this without more specifics, but one could imagine anything from an excellent to completely boondoggle-like use of this money.

I wrote about this at some length between his speech to the Detroit Economic Club and the primary election at The Corner:

Strong people tend to be at their best when the chips are down. I suspect I was not the only conservative with a sneaking sense of admiration for Hillary Clinton’s ability to just dig down deep and out-work Obama in New Hampshire while the whole world was throwing bricks at her head. The chips are down for Romney. He must do well in Michigan to remain competitive — he knows it, and he knows that everybody else knows it too.

Romney’s speech in front of the Detroit Economic Club yesterday was a do-or-die effort done on a tightrope. I got the sense that he was, finally, talking about something that really mattered to him: a renaissance for the U.S. auto industry. His family background in the car business, his work as a management consultant (which in the era he did it was very manufacturing-focused), and his work in the private equity industry (which owns an increasing share of the domestic auto business) brought him here.

That same background, of course, would lead him to understand that economic success means eternal, dislocating change, so that a winning future auto industry would almost certainly be very different in terms of products, organization, sources of value-added, and so on, as compared with the frozen-in-time image that most people have of the mid-twentieth-century vertically-integrated colossus. It would also lead him to understand that he really was on a tightrope: balanced between taking appropriate government action that would help catalyze such change, and the dangerous corporatism to which technocrats are always susceptible. The bulk of the specific policies that he put forward — more rational CAFÉ standards, rejecting McCain-Lieberman, reduced corporate taxes, personal accounts for workforce training, improved schools, careful negotiation of trade agreements, etc. — were pretty unobjectionable in this regard.

The biggest news was his call for $20 billion per year of “investment in energy research, fuel technology, materials science, and automotive technology,” presented both as a way to help the auto industry, and as an alternative to the whole panoply of global warming-related measures that McCain supports. Romney made the sensible point that a unilateral U.S. cap-and-trade regime instituted as a feel-good “statement” that will cost hundreds of billions of dollars and hundreds of thousands of jobs, while not really solving a problem of very uncertain size without global participation, might not be so smart. This issue will move many votes from McCain to Romney today, and it should.

The risk, of course, is that most of this “investment” will be nothing but corporate welfare that props up a decaying auto industry structure, and wastes other people’s money in delaying further necessary restructuring. Without further detail about how the money will be spent, it’s hard to know; but on this issue all of Romney’s instincts seem to be in the right place. Certainly, the small portion of this $20 billion dollars devoted to quantifying and reducing the risks of extreme global warming disasters would be money well-spent.