Symposium | The Middle-Out Moment Is Here

Industrial Policy’s Triumphant Return

By Felicia Wong

Tagged Middle Out Economicsneoliberalism

In 2019, five long years ago, I argued in these pages that “[a]fter decades in the wilderness, critics of neoliberalism have reason to hope.” Neoliberalism had failed on its own terms empirically, delivering neither growth nor stability. Then-President Donald Trump had destroyed the last vestiges of the Republican Party’s rhetorical fidelity to free markets, despite his neoliberal policies (tax cuts, opposition to government regulation, and attacks on labor unions). On the Democratic side of the aisle, Senators Bernie Sanders and Elizabeth Warren were running popular insurgent presidential primary campaigns by arguing against inequality and corporate dominance—and thus against what neoliberalism had wrought.

The idea of neoliberalism was on the ropes. But what was next?

Those of us who objected to neoliberalism’s market-constrained world stepped into that paradigm gap between a failing neoliberalism and whatever would succeed it. We were beginning to develop a more affirmative vision. We argued amongst ourselves, perhaps, but in ways that were big and imaginative. The fights were worth having.

We took into account not just economics, but also politics in the broadest sense of that word. Economists went beyond a focus on markets and tried to understand the importance of power. Political strategists, sensing in the ideological opening a rare opportunity not just to win a handful of better policies but to shape a significantly better future, began to apply lessons from the last paradigm shift: neoliberalism’s march to power. We were on the cusp of something really new.

But it was 2019. Even after the Trump disruption, we understood that the gravitational pull of the status quo usually wins out in real life. Our big notions of change were important, but they seemed destined to stay mostly in the world of ideas.

Fast forward to 2024. Change has come so much faster than we thought possible. Joe Biden, reading the politics, has made a “big left gamble” that seems to be paying off in stronger growth, greater investment, and higher wages. Biden was able to make these policy bets in part because the pandemic economy needed so much government intervention that it shifted the frame of what was possible. Now, our ideas are no longer just talk. We have won far more than we imagined even a few years ago. So this is the time to step back and look around. Five years in, and in the midst of a truly tumultuous presidential election year in which the economy will certainly matter, we must ask two basic questions. The first: Why have we won what we have? And the second: What do we need to do to win more?

Building Power

Some economic ideas, like using public dollars to catalyze private sector clean energy investment, have become not only mainstream but also successful beyond all analysts’ projections. Other ideas, like investing in child and home care or meaningfully reforming labor law, remain in limbo.

We have won most where the policy intervention—public investment—strengthens the power of the more corporate elements of the private sector. And we have so far lost care campaigns, or seen labor wins regarded as “merely political” rather than part of a path to new law, because those historically fissured sectors haven’t yet won enough power relative to the massive influence and scale of capital. Even 2023’s historic labor wins have rarely been portrayed in mainstream media as part of the story of why higher wages are better for our economic future. Plenty of reporters and economic commentators make collective action and the rising wages of a hot labor market seem more threatening than victorious. This shows the ongoing power of neoliberalism’s tilt toward capital.

This brings us to the second question: How do we win more? The answer is as difficult as it is straightforward: build more power—stronger alliances and better arguments that can hold unusual coalition partners together. We must form durable strategic relations across different groups of people—economists, policymakers, and organizers—who don’t yet know one another very well and don’t speak the same vernacular.

The neoliberal era suggests what is possible for us. The ideals celebrating private property and the competitive market gained power once they became embedded in diverse institutions, from the University of Chicago to evangelical megachurches. The strength of the neoliberals’ high-low coalition brought popular figures, like Ronald Reagan, to power, and helped the Reagan presidency survive policy setbacks and even political U-turns (like the fact that his 1981 tax cuts caused deficits and Congress had to raise taxes in 1982 as a result). The Reagan coalition’s clear, simple belief in “free enterprise” tied neoliberals’ elite intellectualism to the profit interests of business leaders and to the common sense of everyday life for tens of millions of Americans.

Today’s movement for a thriving economics beyond neoliberalism requires the same kinds of connections. That is what it will take to build power.

Private Investment, Worker Power—Two Sides, Same Coin

Economic progressives have won a lot across a whole range of policies, although the magnitude of the changes can be hard to see. There are a few reasons for this. First, the inflation of the last few years, which is subsiding as supply chains normalize, has been extremely destabilizing, and it has resulted in significant public disapproval of the Biden economy. Second, the sheer range of change makes it difficult to track. And finally, of course, the transformation is not yet complete. Many of our basic economic interactions remain highly privatized, and both individual and corporate taxes are still nowhere near what they need to be in order to really strengthen the economy and mitigate inequality.

In 2024, we are only part of the way through the fight for a new paradigm. If we want to truly win, we must build a bigger tent. We must hold that coalition together with a clear framework. And we must not be afraid, even at a time of progressive fracturing over President Biden’s Gaza or immigration policies, to herald the economic shifts we have seen since 2021.

The changes are real. Let’s review the bidding.

Industrial Policy

Industrial policy, or what the Biden team calls “Invest in America,” is a visible and important piece of the economic sea change. Government’s new willingness to put a thumb on the scale is in fact an “old-new” approach. Federal funding for roads, bridges, and basic science, which we saw in the 2021 Bipartisan Infrastructure Law, is economically mainstream and should not have been an uphill battle, but in today’s dysfunctional Congress, it was. The 2021 law goes beyond roads and bridges to includes newer priorities, from rural broadband to lead pipe removal. The distinctly Biden take on industrial policy emphasizes government funding for new supply chains, from clean energy to semiconductors, with big, audacious goals like reducing greenhouse gas emissions by up to 40 percent by 2030, or bringing production of the most complex chips, which power everything from phones to cars, back to the United States.

The new industrial policy uses public capital to invest in key industries, aiming to attract private funding. Its explicit goal is to move resources toward publicly important sectors, like clean energy, that otherwise would suffer from market failure and not grow with sufficient scale, speed, or broad-based popular benefit. This is an important move away from the fiction of a hands-off government. We are a far cry away from the IMF’s tongue-in-cheek note, of just a few years ago, that industrial policy was tainted and “shall not be named.” We have changed the terms of the debate, and we have a new starting point: that clear, deliberate government planning is necessary if we are to transition to a clean-energy economy with speed, equity, and at the requisite scale.

It’s hard to say for sure, but industrial policy certainly seems to have captured the lion’s share of attention, at least for a particular group of new economic thinkers. Last year, National Security Advisor Jake Sullivan gave a widely discussed speech declaring a “new Washington consensus” on global economic policy: public investment for good growth, supply chain resilience, and the health of workers around the world. According to the journalist Eric Levitz, Sullivan’s speech heralded the “death of neoliberalism” and posited “industrial policy as the core answer” to a huge range of economic problems. Harvard economist Dani Rodrik has declared a “major reorientation” toward an economy that is “rooted in production, work, and localism instead of finance, consumerism, and globalism.” Treasury Secretary Janet Yellen calls this “modern supply side.” The New York Times’s Ezra Klein wants “a liberalism that builds.” Industrial policy fans certainly don’t agree on everything, but on the core idea, we can cite both Mariana Mazzucato’s “mission economy” and Rhiana Gunn-Wright’s Green New Deal: Government can be invigorating again, and we can, perhaps even across the partisan divide, aspire to the public good.

Modern industrial policy, as instantiated in legislation over the last few years, seems to be working. Public funds can attract (economists call it “crowding in”) private dollars. Private sector investment in manufacturing facilities is at a historic high not seen since 1958. But it would be a mistake to see subsidies to private companies, important as they are, as the answer to all our woes. The other side of the coin of our paradigm shift is more squarely about working-class power. Though this part of the new economics is less discussed as part of strategic policy, the Biden team’s decisions have in fact moved more resources to—and empowered organizing by—America’s working people.

Labor Markets and Labor Power

The labor wins of the last several years are generationally significant. We have a full employment economy—with unemployment hovering around 3.5 percent since 2022, record-high labor force participation, and consistent job growth. That was unheard of a decade ago.

This workers’ market is no accident. The American Rescue Plan (ARP), passed a year into the pandemic, was as much about the fate of workers as it was about combatting COVID. Treasury Secretary Yellen noted in March 2021, when unemployment was still at 6 percent and almost ten million Americans were out of work, that full employment was her economic goal. And in fact, the economic outcomes in 2021, the first full year of the Biden Administration, were remarkable: Thanks to the strength of the ARP’s funding, we saw the creation of 550,000 jobs per month, compared to 130,000 per month in 2010-11, at the height of the Great Recession, after a smaller 2009 stimulus package.

Inflation news dominated much of 2022, and thus some of the labor market successes of the last several years have receded into the background, but they are certainly worth recounting. Wages and wealth went up for the middle class. In a historic first, Black labor force participation rose above white labor force participation in 2021. In 2023, Black unemployment, while still higher than white unemployment, hit a record low of 5 percent. Labor market strength as a whole has surpassed even the most optimistic analysts’ predictions.

Just as important as establishing strong labor market conditions, President Biden has regularly and vocally supported workers’ right to organize. The United Auto Workers (UAW), screen actors, and writers’ strikes made headlines during the “hot labor summer” of 2023, as did the President’s history-making turn on the UAW picket line. All of us who care about the rules that undergird a paradigm shift should recognize the work the Biden Administration has done to strengthen the institutions that make such organizing possible.

Biden took on a Trump-dominated National Labor Relations Board (NLRB), removing general counsel Peter Robb and appointing Jennifer Abruzzo to that role. As a result, the NLRB has issued a series of consequential rulings that have made it easier for workers to unionize without fear of being fired and to organize across different franchises, and have also broadened protected worker conduct to include things such as asking about working conditions in an open setting.

History’s Lessons: Winning Takes Everyone

More investment in our future—good growth—and greater power for working people go together. We need to put these two basic facts about today’s economy together in order to tell the full story of a shifting paradigm. Two historical lessons help explain why.

The first is centered around policy. Historians Nelson Lichtenstein and Judith Stein, in their recent book, A Fabulous Failure, recount Bill Clinton’s economic policy and his attempts at marketcrafting as a cautionary tale. Beginning in 1993, just after his election, Clinton was an industrial policy enthusiast, famously attempting to structure the U.S. health care market by following the examples of Germany and Japan in structuring and subsidizing their electronics and automobile industries. But rather than building a strong and clear argument and enlisting the power of working people to support the President’s case, the Clinton team leaned heavily on technocratic expertise that was easily dismissed as too complicated. And most importantly, Clinton was opposed to real union power. His support for workers was neoliberal, focused on skill-building and educational return on investment rather than on the structural causes of wage decline.

By 1996, the Clinton approach was famously small government and deregulatory: clearly pro-business, and ultimately in favor of tech and finance as sources of economic growth. This is all the more painful in retrospect because Bill Clinton did not begin as a classic neoliberal. The lesson for today is that industrial policy and marketcrafting require popular support and understanding. Strengthening key industries is not just about consumer benefits. Industrial policy must focus on workers, wages, and the right to act collectively if it is to have outcomes beyond industry subsidies and corporate welfare.

The second historical lesson is more political, in the sense that it is about alliance-building. Take it from the neoliberals: With the right economic argument and a smart approach to narrative, we can build a very broad coalition.

Neoliberalism brought together a lot of strange bedfellows, and this was its path to power. In the 1960s and ’70s, it was hard to imagine the 1980s Reagan coalition: powerful academics, Chamber of Commerce businessmen, and religious evangelicals. And it was even harder to imagine that a relatively simple, or at least simple to articulate, idea about how to organize society—that markets are better than government—would unite these disparate factions. The beauty of the “free markets” argument is precisely the fact that it depends on the eye of the beholder. The phrase “free markets” enabled a “take-what-you-want, leave-the-rest” approach that was quite useful politically.

Evangelicals who wanted to preserve male-headed nuclear families and businessmen who wanted less regulation and no unions might have argued about a lot, but they could definitely agree that the government should be less powerful and should tax them less. Certainly, neoliberalism became a lot more powerful when it moved from the lectures of free-market academics and the board speeches of free enterprise businessmen into the streets of California’s anti-tax campaigns and the pulpit of Reverend Robert Schuller’s Crystal Cathedral. This is perhaps the biggest lesson we should learn from the neoliberals: Even abstract academic ideas can power enormous political movements when framed in ways that catch populist fire.

Middle-Out Means Shifting Power

We must see our victories as connected, as parts of a larger whole. But how? Alliances require arguments to keep them stitched together. So, what is our argument?

Let’s try something that brings together both government and workers. It’s simple: Government needs to structure markets so that we can grow the economy as it should grow, from the middle out. Both parts of this formulation are important. First, the government must govern—meaning that it must structure, shape, craft—the economy. And second, the middle, meaning voters and working people, must have power, both individually and as collective agents.

This middle-out, power-shifting approach tells us that the next stages of our paradigm shift require devoting more attention to workers, to labor, and to issues of both class and race. We now know, after the passage of the Bipartisan Infrastructure Law, the CHIPS and Science Act, and the Inflation Reduction Act, that federal dollars can catalyze private funds, fast. These very achievements show us that we must continue to rebalance more power toward labor. Despite the successes the Biden team had in structuring certain industries—shipping during the pandemic, for example, or the current attempts by the Federal Trade Commission to rein in Microsoft, Meta, and Amazon—the playing field remains resoundingly tilted toward capital. The rich are still getting richer, in part thanks to the Biden Administration’s policy wins. In addition to rescue plan funds, generous tax breaks and subsidies for business have contributed to a hot economy and the fastest recovery on record.

A true post-neoliberal economy requires much more assertive policies that “tame the top.” Federal regulatory powers must not only fight. They must also win. And all of us must train our sights on the looming fight to tax capital, both individual and corporate, in 2025. This could be the most consequential battle of all.

The work to empower labor has only just begun. This is not just about wages. It is also about workers having a say over their workplace and working conditions. Worker rights and worker power are integral elements of strengthening business investment and marketcrafting. This will be good for economic thriving—higher wages and better jobs for more people. Our efforts also cannot be race-blind. We must design policy to close racial gaps not only in income, but also in wealth, health, and other critical determinants of people’s basic well-being.

This will be good for our democracy. People who have a meaningful say on things that matter to them economically, like wages and working conditions, are more likely to believe that democratic politics will deliver for them. And people who see that racial and geographic inequalities are not permanent—that government will work on behalf of those it has ignored, left out, or wronged in the past—are, again, likely to believe in democratic governance.

A paradigm shift is about ideas, and many of our wins have been driven by researchers and academics. When Joe Biden, a famously pragmatic and untheoretical politician, says three times in his first presidential press conference, “I want to change the paradigm,” you know that academics have gotten to him somehow. But in addition to academics and policy wonks, many other kinds of people—labor leaders, movement activists, politicians—are critical to further success. Each of these individual victories has a different story, a different arc, different heroes and triumphs. But they are of a piece, mutually reinforcing. That means we are all in it together.

Only alliances win. That is the lasting lesson of the neoliberals. They took the reins of power when they built an angry, mobilized anti-tax movement, and when pastors preached the importance of free markets to tens of millions of Americans every Sunday. We can take the reins of power, too, if we continue to build stronger institutions and a popular movement for a more democratic economy.

Paradigm shift takes all of us.

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Felicia Wong is President and CEO of Roosevelt Forward.

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