“Industrial policy” has gained prominence over the last several years, occupying a prime place in the policy agendas of both political parties. It is also one of the few areas where bipartisanship is on display, as noted in the passage of the Chips and Science Act and the Bipartisan Infrastructure Law.
The catalyst for the priority attention to industrial policy is twofold—the global pandemic and China. In the first instance, the pandemic exposed the shortcomings of overreliance on only a few suppliers of critically important goods, and in the second, there is grave concern over China’s growing competitiveness industrially and militarily.
The United States is competitive, but our allies, as well as our adversaries, are increasingly challenging our industrial prowess. While the United States spends $792 billion on R&D and patents have tripled over the past two decades, China leads in patent applications, with Japan, South Korea, and Germany right behind.
A successful industrial policy is indispensable for a nation that seeks to achieve and maintain global competitiveness. However, attaining that goal cannot be achieved by merely investing more money in research and commercialization, nor can it be realized by imposing tariff and non-tariff barriers to protect uncompetitive domestic industries from foreign rivals.
What is certain is that whatever shape, content, and path a nation chooses for its industrial policy to boost its competitiveness, it cannot be successful without a large workforce of highly skilled individuals.
The foundation for any workforce is going to be the K-12 educational system. This is the “foundation of the house,” so to speak. Sadly, for decades now, America’s performance has steadily declined. The pandemic did make the situation worse, but it was on a downward curve in reading and math for school-age students long before COVID’s wrath struck. The OECD’s latest PISA scores rank China, Singapore, and Estonia in the top three ranks. The United States comes in at twenty-two. The blame lies across the board: dumbing down the curriculum, teachers’ unions that place their interests first at the expense of students and parents, questionable teaching methodologies, and the failure of students’ parents to provide the after-school guidance and coaching that their children sorely need.
Also essential to a highly skilled workforce are vocational education and apprenticeships. In the post-World War II era, going to college was the coin of the realm, and even though the long-term pay-out from a college degree is greater than not attaining one, that is beginning to change as more and more Generation Xers are questioning whether a college degree is worth it—especially with scores of majors such as theater arts, fashion design, and gender studies where post-graduation employment prospects are extremely limited as is the remuneration.
On the other hand, vocational education and apprenticeships lead to high-demand jobs that pay well. In fact, the fastest-growing occupations—all of which pay well—do not require a college degree. The industry-vetted Registered Apprenticeship program approved by the U.S. Department of Labor is a case in point. Over 93 percent of apprentices who complete this program retain employment with an average annual salary of nearly $80,000 per year.
Despite the many flaws and shortcomings in American universities, the United States does have a higher education infrastructure in STEM that is unsurpassed: basic and applied research, development and demonstration, patents, as well as incubators and accelerators tied to the private sector and venture capital funds. The talent embedded in American colleges and universities extends as well to higher education collaboration worldwide. To illustrate, in May, Purdue University, a bastion of excellence in science, engineering, and technology, established a milestone semiconductor alliance in India; Carnegie Mellon with universities and research centers in East Africa, Portugal, and Thailand, among others; and my own university has established formal partnerships with thirty-nine accredited universities in sixteen countries throughout Latin America, the Caribbean, and Asia.
Another successful feature of successful industrial policy is the contribution to knowledge acquisition and development and worker upskilling on the part of corporations themselves. While scores of companies turn to universities for executive education programs in business and engineering, many provide education and training in-house—all tailored to the existing and prospective needs of the company. Googleplex, Apple University, J.P. Morgan, McDonald’s, Caterpillar, and Toyota all have a “university” where they have customized programs for their middle-level and senior managers. Labor unions, particularly CWA and IBEW, also have a broad curriculum of programs for their workers to help improve performance and competitiveness.
When it comes to human capital and American industrial competitiveness, the greatest impediment is U.S. immigration policy. Complex, confusing, convoluted, and contradictory, U.S. immigration policy is an enduring barrier to American competitiveness. The United States faces a shortage of STEM workers while undergraduate and graduate enrollments in science and engineering continue a downward trend. International students dominate STEM fields in the university, yet upon graduation, they must return to their homeland unless they can snag a twelve-month Optional Practical Training waiver. As for obtaining a H-1B work visa, employers are subject to significant difficulties in hiring from other countries as a result of the low annual limit for approving H-1B visas. The cap of H1B visas for those with a master’s degree or higher is a mere 20,000 per year. Liberalizing immigration policies and rules in favor of educated and highly skilled foreigners (as Canada, Australia, and New Zealand have done) produces a whole host of benefits that far exceed the costs of immigration—benefits that are truly essential to bolster American competitiveness. To wit, 55 percent of billion-dollar start-ups have an immigrant founder; moreover, immigrant entrepreneurs and their children have founded more than 25 percent of technology and engineering companies, including Apple, Google, Amazon, eBay, and Yahoo!
Both Democrats and Republicans agree that America needs a competitive and sustainable industrial policy to challenge China and other rivals. We cannot succeed in attaining that goal without addressing the voids in human capital at all levels. This will require a concerted effort among business, labor, academia, government, and the non-profit world—separately as well as collectively—to not only survive but thrive in the increasingly competitive global environment, one in which smart and sound industrial policy, anchored by human talent, will play a major role.
Jerry Haar is a professor of international business at Florida International University and a fellow of the Woodrow Wilson International Center for Scholars and the Council on Competitiveness, both in Washington, D.C. He is also a board member of the World Trade Center Miami.