Industrial Greatness Requires Economic Depressions

Full article in Palladium magazine.

The state’s role in supporting economic growth is critical. Our wealth comes from industry, that is, from the ability to mass produce goods—more goods, better goods, cheaper goods, produced with fewer hours of labor. The biggest advances in industrial production have required massive investments and social transformations so large they can only succeed with the support of the state, including in countries where the state’s support comes largely via market mechanisms, like the United States and modern China. A well-designed industrial policy works by incubating new, better modes of production to move a nation from its current economic equilibrium to a new, wealthier equilibrium.

It is a tragedy, then, that our current economic policy does exactly the opposite. We are vastly poorer because, instead of supporting “infant industries” until they can stand on their own feet, the U.S. government has spent trillions of dollars to keep the most senile and sclerotic businesses on life support. This keeps millions of talented people and tens of trillions of dollars worth of plant and equipment locked up in decrepit enterprises run by mediocrities who specialize in preserving the status quo, or by outright incompetents running their businesses into the ground.

In the words of the economist Joseph Schumpeter, “[T]he problem that is usually being visualized is how capitalism administers existing structures, whereas the relevant problem is how it creates and destroys them.” If the government were willing to let big businesses die a natural death when their time comes, then these resources would be captured by better-managed firms, and our industrial and technological growth would proceed faster. In 2024, the largest 0.1% of businesses, those with over 500 employees, accounted for 54% of private sector jobs in the U.S. Firms with over 10,000 employees accounted for 18% of U.S. manufacturing jobs. Our prosperity, and especially our grandchildren’s prosperity, depends critically on how much of this is in the hands of companies like Boeing and how much is in the hands of companies like SpaceX.

Continue reading my full article in Palladium magazine.