Industrial Policy in the United States: A Neo-Polanyian Interpretation

• Author: Josh Whitford,Andrew Schrank
• Published date: 01 December 2009
• Date: 01 December 2009
• DOI: http://doi.org/10.1177/0032329209351926
• Subject Matter: Articles

Politics & Society

37(4) 521 –553

© 2009 SAGE Publications

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DOI: 10.1177/0032329209351926

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Industrial Policy in the United

States: A Neo-Polanyian

Interpretation

Andrew Schrank1 and Josh Whitford2

Abstract

The conventional wisdom holds that U.S. political institutions are inhospitable to

industrial policy. The authors call the conventional wisdom into question by making

four claims: (1) the activities targeted by industrial policy are increasingly governed by

decentralized production networks rather than markets or hierarchies, (2) “network

failures” are therefore no less threatening to industrial dynamism than market or

organizational failures, (3) the spatial and organizational decentralization of production

have simultaneously increased the demand and broadened the support for American

industrial policy, and (4) political decentralization is therefore likely to improve the

functioning of industrial policies designed to combat network failures.

Keywords

industrial policy, networks, federalism, Polanyi, governance

A substantial body of literature addresses the alleged merits and putative preconditions

of industrial policies designed to foster adjustment and economic growth. Industrial

policies that ostensibly combat market failures in centralized polities are purportedly ill

at ease in their decentralized counterparts, and no less “sympathetic” an observer than

sociologist Frank Dobbin therefore finds it hard to believe that an American “industrial

policy would meet with success, as in Japan, rather than with disaster, as in Britain.”1

Nor is Dobbin alone. “Political sociology’s conventional wisdom suggests that Ameri-

can state structure is better suited to inchoate, misguided bailouts characterized by

political graft than to coherent, disinterested, planning on the Japanese model.”2

1University of New Mexico, Albuquerque, NM, USA

2Columbia University, New York, NY, USA

Corresponding Author:

Andrew Schrank, Department of Sociology, University of New Mexico, Albuquerque, NM 87131, USA;

phone: (505) 277-8805

Email: schrank@unm.edu

522 Politics & Society 37(4)

This article calls the conventional wisdom into question, however, by making four

key points about the relationship between economic needs and political possibilities in

the contemporary United States: first, that the activities most likely to be targeted by

industrial policy are increasingly governed by decentralized production networks

rather than competitive markets or vertically integrated corporations; second, that

“network failures” are therefore no less threatening to industrial dynamism than

“market failures” or “organizational failures”; third, that the spatial and organizational

decentralization of production have simultaneously increased the demand and broad-

ened the support for industrial policy in the United States; and fourth, that political

decentralization is likely to improve, rather than inhibit, the functioning of industrial

policies designed to combat network failure in the U.S. context.3 We therefore conclude

that the development of a theory of network failure capable of guiding intervention into

the network economy is an urgent task not only for economic sociology but for pro-

gressive politics as well.

Our argument draws explicitly on a “neo-Polanyian” approach to political econ-

omy in that it simultaneously rejects the idea “that the economy is autonomous and

obeys a single logic” and recognizes the ebb and flow of laissez-faire and social

protection—that is, the pendular swing at the heart of Polanyi’s Great Transformation—

as the principal source of dynamism in capitalist society.4 Part I sets the proverbial

stage by placing the neo-Polanyian interpretation against the backdrop of three earlier

approaches to industrial policymaking—orthodox market fundamentalism, liberal

market skepticism, and neo-institutionalism—that gave analytical pride of place to

path dependence and market failure.5 Our goal in so doing is less to fight a three-front

war than to trace the evolution of the “industrial policy debate” over time.6 Part II

portrays contemporary American industrial policies not as path-dependent legacies of

decentralized political institutions but as open-ended responses to the decentralization of

economic activity and in so doing identifies network failures as their unacknowledged—

and heretofore unnamed—targets. Network failures arise where the social and political

requisites of productive decentralization fail to obtain, and actors who would other-

wise reap the rewards of reciprocity are tempted—if not necessarily compelled—to

abandon “network forms of organization” for suboptimal markets or hierarchies.7 Part

III holds that network failures are best addressed not by abandoning network forms of

organization but by pursuing industrial policies that are simultaneously designed to

ensure their success and at home in the U.S. political context. While federalism and

the separation of powers are admittedly incompatible with the development of an

“integrated economic strategy” like the one adopted by postwar Japan, they all but

guarantee experimentation, diversity, and the exploitation of local knowledge and in

so doing allow decentralized production networks to flourish.8 And Part IV concludes

by calling for the development of a theory of network failure designed not only to

advance the intellectual project of the new economic sociology but to contribute to a

progressive policy agenda by facilitating policy responses to the malfunctioning of the

network economy. Existing theories of market and organizational failure dominate the

contemporary policy discussion in part because they serve to diagnose problems and

Schrank and Whitford 523

direct public and private officials toward meaningful solutions. A viable theory of

network failure will have similar practical payoffs and will simultaneously place the

new economic sociology on a sounder theoretical footing.

I. Intellectual Context

Fred Block provides our analytical point of departure by developing a “neo-Polanyian”

perspective on comparative capitalism. Block holds that modern market economies are

not only “embedded in legal, cultural, and political frameworks,” à la Polanyi, but are

simultaneously inoculated against systemic crisis by a variety of buffers and control

mechanisms.9 “A catastrophic failure that spreads from one part of the economy to

others is still possible,” he writes, “but such events are unlikely and unusual. The

more typical pattern is that economic and political actors find ways to keep strains

and difficulties in one part of the economic mechanism from having a dramatic

impact elsewhere.”10

The buffers and control mechanisms in question include taxes, regulations, subsi-

dies, and public (or quasi-public) goods. They are simultaneously sources and symptoms

of the so-called double movement between laissez-faire and social protection described

by Polanyi. And their constant invention and reinvention ensure that market societies

and institutions are not only less homogeneous but less path-dependent than existing

theories allow.11 The neo-Polanyian position can therefore be defined in terms of its

commitment to three broad analytical principles: the “always embedded” nature of

economic activity, the multiplicity of “ways to make a capitalist economy work,” and

the double movement of privatization and protection that brings the system to life.12

The debate over the likelihood and desirability of an American industrial policy

provides a particularly useful test of the neo-Polanyian strategy, for industrial policies

are classic examples of capitalist control mechanisms, and the leading approaches to

their study tend to deviate from at least one of the aforementioned principles.13 In fact,

the best-known argument against industrial policy—and the principal target of Block’s

2008 critique—is a market fundamentalist position that rejects all three neo-Polanyian

commitments.14 Market fundamentalists portray the market as a natural and self-

regulating institution, the competitive process as an unforgiving source of productive

optimization, and the “protective countermovements” anticipated by Polanyi as short-

sighted threats to growth and efficiency.15 While market fundamentalists accept the

reality of market failure and the possibility of corrective action in theory, they hold that

government failure is more common and militates against corrective action in practice.

The market fundamentalist approach to industrial policy is therefore best encapsulated

by Gary Becker’s confident assertion that “the best industrial policy is none at all.”16

The first round of the industrial policy debate pitted market fundamentalists like

Becker against market skeptics like Robert Reich, Barry Bluestone, and Bennett

Harrison more than a quarter of a century ago.17 Market skeptics recognize that “gov-

ernment creates the market,” and thereby embrace the embeddedness assumption, but

simultaneously doubt that “there are multiple strategies for maintaining or improving a