Wednesday, June 9, 2021

Two Cheers (But Only Two!) for the Endless Frontier Act

The Senate just passed the Endless Frontier (US Innovation and Competitiveness) Act, providing $250 billion over five years in basic scientific research and manufacturing innovation. This is a good thing and way overdue, given the long term decline in federal support for R&D.
But there are some drawbacks. One thing is, as David Leonhardt notes, is that:
"[I]t does not come close to eliminating the R. & D. gap between the U.S. and China. The bill is significantly smaller than an earlier Senate proposal, largely because Republicans favored a smaller bill. The current version would spend almost $250 billion over five years, some of it on other items, and probably lift annual federal R. & D. spending by only between 0.05 percent and 0.2 percent of G.D.P."
So the bill is underfunded. In addition, much of the money, relative to the initial draft of the bill, has been moved away from a new NSF Technology Innovation directorate that could have played a more effective role than the current wide distribution of support to existing national labs.
But the bigger problem is that the bill does not break new ground in terms of a proper and necessary industrial policy for the country. Interestingly, a good model is available for such a policy: Operation Warp Speed (OWS), which was implemented under President Trump. Perhaps one reason there isn't wider appreciation of this is that Democrats are loathe to see any good in something that happened under Trump. That would be a mistake.
A new article in American Affairs by David Adler is the best thing I've seen breaking down the mechanics of of OWS and how it was so phenomenally successful. Adler is very good on how OWS shows that successful industrial policy must go far beyond simply investing in basis scientific research, however desirable that might be. I strongly urge you to read this article.
"Operation Warp Speed1 (OWS) was launched on May 15, 2020. A partnership between the Departments of Health and Human Services (HHS) and Defense (DoD), other agencies, and the private sector, its goal was to “accelerate the testing, supply, development, and distribution of safe and effective vaccines, therapeutics, and diag­nostics to counter Covid-19.” As a result of OWS, millions of lives were saved from the pandemic.
Operation Warp Speed was a triumph of public health policy. But it was also a triumph and validation of industrial policy. OWS shows what the U.S. government can still accomplish when it comes to tackling a seemingly unsolvable technological challenge. It demonstrates the strength of the U.S. developmental state, despite forty years of ideological assault.
OWS offers insights into what is required to rebuild American production of key medical products and other industrial capabilities more generally. Investing in only basic scientific research, the tra­ditional strategy of the United States, is not sufficient. Instead, reindustrialization requires sustained demand2—as provided by Warp Speed’s guaranteed contracts. To avoid stagnation, it should involve competition among firms as well—which in OWS took the form of a race for FDA approval of vaccines.
But OWS can also be understood as a specifically American oper­ational success story, a government structure that can be used to implement industrial strategy more broadly. OWS is a working mod­el of how different government agencies, and the private sector, can cooperate to quickly solve a technological challenge. It illustrates best practices in program design, as well as in government contracting.
Though OWS was created to accelerate the development, manufacturing, and distribution of vaccines, this same institutional model could be used for other technological and manufacturing challenges facing the United States. Conventional fiscal or monetary policy is no longer working effectively to foster domestic productivity growth or to prevent deindustrialization. OWS‑type interventions offer an entirely new set of economic poli­cies that could be a blueprint for industrial strategy going forward. OWS shows how the United States can reimagine and leapfrog existing manufacturing paradigms to dom­inate the technologies of the future. The model offers new ways to bolster economic security and ultimately national security as well."

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