Symposium | The New Supply-Side Progressivism

The Promise of Marketcrafting

By Chris Hughes Peter Spiegler

Tagged Biden AdministrationDemocratsEconomicsprogressivism

Americans face a set of big, gnarly challenges years in the making. We just fought our way through a persistent pandemic, which left more than a million dead in its wake. Climate change threatens our way of life, and global superpowers China and Russia are increasingly antagonistic. Meanwhile, the fundamentals of our domestic political economy are still weaker than they should be, with only modest wage and productivity growth and low levels of non-real estate business investment.

In the face of these challenges, political leaders on the left, and to a more limited extent on the right, have broken with the free-market framework. They are now using public policy to deliver robust solutions to these problems: developing pandemic-fighting, breakthrough vaccines; combating climate change with massive public investment; resuscitating American semiconductor manufacturing; and refreshing and expanding our nation’s infrastructure. Supporters of these policies are not expecting a “free market” to spontaneously solve our problems. Instead, they see that a more muscular, proactive federal government is organizing markets to meet political and social goals.

Many analysts have named this moment a “return of industrial policy,” but that characterization misses at least two important factors. First, as many progressive commentators have noted, the government has always been active in shaping markets. Even during the neoliberal era, policies presented as deregulatory or as a retreat of the state were in fact acts of re-regulation that used state power to privilege some groups over others.

Second, the term “industrial policy” is too narrow to capture the myriad ways in which the government interacts with and shapes markets. Industrial policy is most closely associated in the public mind with large public investment projects and state subsidization of particular industries—i.e., “picking winners.” But there are many other ways that states work through markets to achieve policy goals—for example, through competition and tax policy.

The renewed interest in a strong state that shapes and directs markets to achieve policy goals is best understood within the framework of “marketcraft,” a term first employed by the political scientist Steven Vogel. From the marketcrafting perspective, what we are seeing now is not so much a return to “interventionist” economic policy as it is a recognition that policymakers can and should put important policy goals first and avoid treating markets as exogenous, sacrosanct spaces. In other words, it is a recognition that policy works through markets rather than imposing itself on them.

Marketcraft encompasses a wide range of state action. It includes large-scale public investment programs like those supporting the CHIPS and Science Act or the New Deal-era Tennessee Valley Authority, as well as the creation of public options as alternatives to private provision of goods and services, like Medicare and the U.S. Postal Service. It also includes the many forms of market governance, through which the state continually creates and shapes the architecture of markets. For example, states employ competition and antitrust policy to ensure that markets are fair, and that powerful incumbent firms cannot suppress competition. States use tax policy to change the relative value of certain kinds of labor and to promote certain consumption patterns, just as they use intellectual property law to encourage or stifle research and development, depending on the structure of patent and copyright protections.

Because marketcrafting involves shaping how markets function, it is distinct from a wide range of economic policies that are largely focused on providing financial assistance to compensate retrospectively for adverse market outcomes (e.g., food stamps and Social Security benefits). Marketcrafting is about harnessing the power of markets in the pursuit of social and political goals, whereas redistribution is a remedial measure to help meet people’s basic needs.

There is nothing inherently progressive about marketcrafting. Both left and right economic policy involves government shaping of markets, even if it is not always done openly and transparently. Because of a perceived need to adhere to so-called free-market principles—especially in the neoliberal environment of the past several decades—U.S. policymakers have often hidden or de-emphasized the market-shaping effects of their policies. This has led both to the perception that the United States does not regularly engage in marketcrafting and to a piecemeal approach to marketcrafting that is less effective and more prone to special interest capture.

For instance, in the financial sector, the Treasury Department and the Federal Reserve collaborated for decades to create financial markets that prioritized global integration, concentration, and undirected financial innovation, often sacrificing financial stability in the process. Policymakers at Treasury, the Fed, and in Congress believed that these markets were largely self-regulating. They considered creating new governance requirements for these markets to enhance their stability, like margin requirements on derivatives and a cap on the size of the mortgage portfolios of Fannie Mae and Freddie Mac. But until the Dodd-Frank reforms in the wake of the 2008 financial crisis, policymakers decided against these actions, thus crafting a market structure that promoted more risk and integration.

A successful progressive marketcrafting policy agenda—one that can address the major economic challenges of our day, and that promotes a more stable, inclusive, and prosperous economy—requires a deliberate approach. For a marketcrafting policy program to be at once effective and progressive, it must have three features: a clear articulation of a mission; a sound implementation, coordination, and maintenance strategy; and a robust accountability framework.

Mission. Addressing major policy priorities—such as moving to a carbon-neutral energy system or reshoring manufacturing of strategically important goods—requires a commitment of substantial resources and the involvement of numerous agencies over an extended time period. The economist Mariana Mazzucato and others have proposed that the state can facilitate this process by establishing policy “missions.” Specifically, this entails articulating clear and concrete goals and providing sustained leadership in coordinating the public and private efforts necessary to ensure that the goals are achieved. The mission provides an important focal point both for building and sustaining coalitions of support and for managing the complex implementation of the policy program.

The CHIPS Act of 2022 provides a good example of mission-oriented policy. While the explicit intent of the act is to reshore semiconductor manufacturing, the act’s backers generally expressed their support in terms of one or more of three interrelated missions: shoring up America’s supply chains, reducing U.S. economic vulnerability to China, and creating high-quality American jobs. Invocation of these missions—especially the national security and job creation missions—was particularly helpful in building coalitions of support for the act. All three missions provide focal points for coordinating policy implementation. The supply chain mission connects the CHIPS Act to the Biden Administration’s economy-wide supply chain policy program, and the national security and jobs missions help to provide a rationale for the security- and job-related actions required of funding recipients.

Missions are uniquely mobilizing in that they set a clear goal that makes sense to a broad and diverse set of political and economic actors. The clearer the mission, and the more concretely its benchmarks are articulated, the easier it is to evaluate its success.

Implementation, Coordination, and Maintenance. Policymakers must not only develop a plan for carrying out the policy mission in the short term, but also for maintaining the conditions for its success.

Successful implementation requires determining the appropriate mix of marketcrafting policies, giving clear guidance on and authority over tasks, and entrusting tasks to the appropriate agencies (or creating new institutions as necessary). For example, the CHIPS Act utilizes a combination of public investment and market governance, appropriating funds for grants and loans to support semiconductor fabrication as well as instituting tax incentives to lower the private cost of selected manufacturing activities. Primary responsibility for implementation flows largely through the Department of Commerce. Specifically, disbursement of the act’s appropriations will be coordinated through a newly created CHIPS for America Fund administered by Commerce’s National Institute of Standards and Technology.

Large-scale marketcrafting programs typically require action from a range of departments and agencies across government. Efficient coordination of this activity is vital to the ongoing success of the program. For example, implementing the CHIPS Act’s investment tax credits requires coordination between Commerce and Treasury. Monitoring and enforcement of the act’s prohibitions against funding recipients siting manufacturing in countries that present a national security threat to the United States require coordination among the Departments of Commerce and Defense and intelligence agencies. Because of the complexity and importance of these tasks, policymakers should give due attention to coordination planning in their policy design and ensure that adequate funding to support these activities is included in the enabling legislation.

In addition to implementation and coordination concerns, it is also important for progressive marketcrafting policy agendas to include measures to address potential threats to the ongoing viability of the program—i.e., factors that might erode support for the program even if it is successful in delivering on its stated objectives. We can call these “preventive maintenance” measures. Increased inflation is one such threat, especially for policy programs involving substantial public investment. Such programs should, where possible, include measures to address supply chain problems that could render the new spending inflationary. The CHIPS Act, for example, essentially has such a measure built in. In seeking to prevent the kind of semiconductor supply bottleneck that contributed to the post-COVID inflation surge, it is at once a public investment and an inflation-dampening program.

Accountability. The U.S. economy is far from a level playing field. Decades of neoliberal policies have resulted in a governance structure that systematically favors the interests of capital at the expense of workers and amplifies and reinforces the exclusion of marginalized communities. By removing checks on the power of dominant groups, neoliberal policy turns the market into yet another institutional vector perpetuating economic inequality as well as racial and other forms of discrimination. A progressive marketcrafting program must include measures to ensure that these biases embedded in markets do not undermine the program’s intended effects or the just and equitable distribution of the program’s benefits. We can call such measures “accountability mechanisms.”

In general, progressive policy must be attentive to three kinds of dangers: unjust appropriation of the benefits of the policy by private actors; capture of the policy process by private actors; and the exclusion of impacted communities from the full benefits of the policy and/or from decision-making processes about the delivery and distribution of those benefits.

Private actors are able to unjustly appropriate the benefits of policies principally by capturing excess profits through practices that squeeze labor and deprioritize environmental responsibility and by directly transferring funds to shareholders, often through stock buybacks and dividends. This can be countered by measures that make receipt of public funds conditional on adoption of responsible labor, environmental, corporate governance, and/or capital management practices. The CHIPS Act, for example, contains measures to prevent funding recipients from engaging in stock buybacks. And the Inflation Reduction Act (IRA) requires firms accessing the act’s enhanced tax benefits to pay prevailing wages.

Both policy capture and exclusion of marginalized groups from policy benefits can be mitigated through measures that cultivate broad stakeholder participation in oversight and monitoring. The IRA, for example, contains a provision establishing oversight by the Government Accountability Office and the Office of Management and Budget, and in an effort to protect that process from capture, a broad consortium of progressive institutions has pressed these agencies to engage with all relevant stakeholders in designing and implementing their oversight. In addition, policymakers can take proactive measures to ensure that all groups share in policy benefits.  The IRA, for example, explicitly appropriates funds to support improvements in energy efficiency and the adoption of greener energy alternatives in “low-income and disadvantaged communities.”

Accountability mechanisms are an essential part of progressive marketcrafting policy, but policymakers must also be aware of potential tension between these mechanisms and a policy program’s other objectives. The current economy exhibits and perpetuates many kinds of injustice, and so operating through markets in a just manner will require a large number of corrective measures. The CHIPS Act and the IRA contain many such measures—e.g., requirements that funding recipients pay prevailing wages, fund apprenticeships, invest in expanding employment opportunities for economically disadvantaged individuals, and ensure that affordable child care is available for workers. While these accountability mechanisms are pursuing laudable and appropriate goals, they may introduce frictions into the process of delivering on policy goals such as rapidly reshoring U.S. chip manufacturing or transitioning to a green energy economy. The costs may be acceptable in some cases, but policymakers must at least recognize the tradeoffs.

Our nation and world face enormous challenges. Inaction or faith in a spontaneously organizing “free market” will lead to failure. Doing big things means embracing government’s power to harness markets to meet our social and political goals. A new industrial policy will only take us so far. If we expand the horizons of what we consider effective economic policy, we can ensure that markets function in a way that serves all Americans, equipping us to face the challenges of our time.

This essay was partially derived from a report issued by the Roosevelt Institute in May 2023 titled Marketcrafting: A 21st-Century Industrial Policy.”

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Chris Hughes is a senior fellow at the Institute on Race, Power, and Political Economy at The New School and a co-founder of the Economic Security Project.

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Peter Spiegler is a Senior Researcher at the New Institute of Political Economy. He is the author of Behind the Model: A Constructive Critique of Economic Modeling.

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