The Many Industrial-Policy Chiefs

John Podesta: Senior adviser to the president, oversees implementation of the Inflation Reduction Act

Raimondo:

Mitch Landrieu: Senior adviser to the president, coordinates policy on the Infrastructure Investment and Jobs Act

Jake Sullivan: National security adviser, handles foreign-policy spillover effects from the focus on economic nationalism tice. Five large U.S. semiconductor firms (Intel, IBM, Qualcomm, Texas Instruments, and Broadcom) spent $250 billion on buybacks from 2011 to 2020. That’s a whopping 70 percent of their net profits, and also more than five times the public funds spent in the CHIPS Act.

Raimondo has said she opposes buybacks. At a September 29 hearing, Sen. Warren called on Raimondo to set up tougher rules, like requiring companies to attest on the application form that they won’t engage in buybacks, and clawing back funds from companies that go back on their word. Raimondo took no further action.

Domestic Jobs, or Union Jobs?

Pre-existing Buy America requirements and the 1931 Davis-Bacon Act in effect require construction and transportation projects built with federal funds to use union labor, though labor still has to fight to make sure these commitments are honored, especially in right-to-work states. These new indus- trial policies will still likely be bonanzas for the building trades, and several tax-credit provisions in the IRA do give extra credit to projects that pay prevailing wages. But the Biden administration has not used its potential leverage to require companies accepting federal subsidies to refrain from resisting union organizing drives for production jobs.

A White House 182-page Guidebook, released in December, detailing all the clean-energy subsidies and conditions of the Inflation Reduction Act, declares that “the Inflation Reduction Act is designed to ensure that these transformative investments create good-paying union jobs.” But as the Prospect has documented, that claim is grossly exaggerated. Neutrality requirements for companies receiving benefits under both the IRA and the bipartisan infrastructure law were stripped from the final legislation.

The tech industry is notoriously antiunion. It would be a huge breakthrough if production workers at semiconductor fabs and other tech companies were unionized. Generally speaking, these companies pay decent wages but fiercely resist unions. Biden does have the power to change that by directing the Commerce Department to make union-friendliness an express criterion in the applications for subsidy that Commerce reviews.

The CHIPS and Science Act allocates $10 billion to develop “regional technology hubs.” The law mandates worker participation, but Republicans who supported the bill expect their share of the regional money, and several of these hubs will be in rightto-work states.

Government lawyers generally take the position that requiring companies taking subsidies to explicitly commit to “neutrality” in union organizing drives would invite lawsuits. The preferred language would have federal performance requirements refer to job quality and strategies such as community benefits agreements, which in turn involve unions and pave the way for organizing with de facto neutrality.

The CHIPS and Science Act gave all the power and most of the money to the Commerce Department. The National Science Foundation was given $200 million to promote training of tech workers through regional partnerships between educational institutes and employers. The Labor Department, the agency closest to the labor movement and traditionally its advocate, got nothing, not even money for apprenticeship. A $200 million grant for tech worker training through regional partnerships was instead routed through the National Science Foundation.

The New Republic, in a scathing article last September on Labor Secretary Marty Walsh’s policy disengagement, quoted congressional sources describing Walsh as absent from the legislative process when the CHIPS legislation was going through Congress, and getting outplayed by Raimondo. Labor later had to negotiate a memorandum of understanding with Commerce on its consultative role.

Commerce has no experience in workforce development. The Big Tech companies would like the government’s help in training production workers without the complication of a registered tech apprentice program on the model of the building trades, which might be union-friendly. Mike Russo, a onetime leader of a Steelworkers affiliate and a respected expert on workforce develop - ment, has contracts with both the NSF and the Labor Department to develop one-stop models of training and apprenticeship for tech workers. Whether these are paths to union production jobs will depend on the rules written by other agencies.

In November, in response to a request for comment, the AFL- CIO sent Raimondo a 41-page memo on exactly how they would like to see the CHIPS process structured, to carry out the administration’s general commitment to good jobs, and ideally to unionized jobs. Among the key demands: “The Commerce Department must require CHIPS incentives applicants to submit a job quality and worker protection plan.” The federation also called on the Commerce Department to prioritize CHIPS incentives, grants, loans, and loan guarantees to applicants that affirmatively allow workers to join a union “without fear of intimidation or retaliation throughout the semiconductor industry and supply chain.”

Raimondo is extremely unlikely to agree to this de facto neutrality condition unless personally directed to do so by President Biden. One concern is that Commerce will be friendly to collective-bargaining agreements in blue states where strong unions do the heavy lifting, but do nothing to advance union successes in right-to-work states where a lot of federal money will subsidize fab construction, such as Arizona.

The Department of Energy has done somewhat better than Commerce. DOE ’s recent notice of funding availability for $3 billion in battery subsidies provides a 20 percent credit for manufacturers who commit to good jobs throughout the workforce (not just construction) and community benefits agreements. DOE still needs to draft strong, enforceable language for the actual contracts.

At the other extreme, the Environmental Protection Agency, which got $5 billion under the bipartisan infrastructure law to subsidize school districts to acquire electric buses, just shoveled out the first $1 billion to districts, with no labor standards of any kind. Of the four electric-bus manufacturers in the U.S., two are organized by the UAW. One other, Lion Electric, is currently the object of an intense campaign by Jobs to Move America and its union and community allies to accept a community benefits agreement, the precursor to unionization. EPA labor standards could have helped, and still could.

When the Community Benefits

More progress has been made at the state and local level. Since 2011, Jobs to Move America and its union and community allies have extracted community benefits agreements (CBA s), which they call a U.S. Employment Plan, from bus and railcar manufacturers in several states. The CBA commits employers to hire union workers as well as more minority and disadvantaged workers, using the leverage of local government procurement and pressure from organized labor, especially in areas with a strong union presence.

In Los Angeles, the Metro transit agency agreed to require that its new electric buses be manufactured with union labor. In Chicago, another strong union town, the local labor federation and JTMA, using a community benefits strategy, got the city to insist that the contractor, CSR, receiving a $1.3 billion contract for 846 railcars, will not only produce in Chicago but have a union contract.

In its extended memo to the Commerce Department, paralleling that of the AFL-CIO, JTMA called on Commerce to require all bidders to have a U.S. Employment Plan that enumerates how many domestic jobs will be created or supported, what the minimum wages will be, and how they will hire disadvantaged or underrepresented workers.

The JTMA strategy—CBA s leading to good union jobs—is the template for the leverage the labor movement wants the Biden administration to exert on the corporate beneficiaries of its trillions of dollars in industrial-policy spending. But even though the federal government is the ultimate source of much state and local transportation money, national Democratic administrations in Washington, despite friendly general commitments, have seldom been willing to get into the trenches on behalf of unions.

Until President Obama’s last year, when his Transportation Department issued a statement cautiously supporting CBA s, his administration was largely unhelpful to the JTMA strategy, raising legal concerns that they might be anti-competitive, and failing to use the leverage of federal funds to promote unionized production jobs except on traditional construction contracts.

It remains to be seen whether Biden’s administration will do any better. Biden does have the power to direct Cabinet secretaries to include explicit pro-labor language in their detailed performance standards.

Biden could also direct his secretaries to convene meetings between corporate CEOs seeking discretionary funding and leaders of unions seeing to organize their production workers, to pursue areas of common ground and report back before any government financing commitments are made.

The senior trade union leaders I spoke with view Biden as the best friend of the labor movement since FDR , but say he needs to play more of a hands-on role when it comes to the details of policy. Ribbon-cutting photo ops, like the recent one in Covington, Kentucky, are great politics, but no substitute for presidential engagement in the policy implementation process.

NIMBY on Steroids

The U.S. requires large projects to run a more complex gauntlet of permitting and environmental review requirements than any other large industrial nation. In 2020, the White House Council on Environmental Quality compiled data on timelines for 1,276 environmental impact statements (EIS) filed between 2010 and 2018 and found that NEPA reviews averaged 4.5 years.

A detailed study done for the Center for Security and Emerging Technology, pointedly titled “No Permits, No Fabs,” looked at all the world’s semiconductor fabs built between 1990 and 2020. Not only did construction take longer in the U.S., but the delay increased over time, rising from an average of 665 days from 1990 to 2000 to 918 days between 2010 and 2020. The study contrasted the welcome mat rolled out for tech companies by Taiwan and Singapore with the serial obstacles facing them in the U.S.

In addition to legitimate environmental reviews, major new facilities sometimes attract local opposition from citizens and local governments that don’t want the additional traffic, noise, environmental risks, toll on water and sewer systems, or newcomers. This was not the case in the last midcentury, when environmental reviews didn’t exist and Ford or GM plants were seen only as sources of badly needed new jobs.

An emblematic case is the story of the obstacles thrown in the path of New York state’s ultimately successful efforts, under eight governors (from Republican Nelson Rockefeller to Democrat Andrew Cuomo), to turn the Capital Region around Albany into a world center for nanotechnology. The motivation was the severe decline in manufacturing jobs and the shrinkage of the region’s anchor tech employer, IBM

This process was a surprising success of regional industrial policy for advanced tech. So far, it has created at least 10,000 direct production jobs and 50,000 secondary jobs, with more to come. But along the way, the effort was repeatedly stymied by small-town local governments.

In 1996, after extensive investment in area universities, the regional development authority began efforts to attract a major semiconductor fab. This was blocked when the first-choice location in North Greenbush (population at the time: around 10,000) was vetoed by the town council. Saratoga County, working with Advanced Micro Devices (AMD), then filed initial requests for approval of a new fab in the nearby towns of Malta and Stillwater in 2002.

Production finally began ten years later, in 2012. If this is the pace of approvals under Biden’s new industrial policies, we will all be wards of the Chinese by the time new fabs are actually built.

Beyond opposition that is arguably legitimate due to concerns about traffic and the toll on local public infrastructure, some county governments controlled by Republicans either oppose federally funded projects per se, or don’t want Biden-sponsored initiatives to succeed.

Semiconductor production is also cyclical, subject to periodic gluts; we’re seeing that right now, as consumers pull back after high pandemic-era spending. Yet it is part of a much broader revived national innovation system that anchors other good jobs. In upstate New York, GlobalFoundries and Micron are laying off hundreds of workers this year. But both companies say these layoffs are temporary, and both are doubling down on new plans for more longterm investments. Forecasting a doubling of demand for semiconductors by 2030, Micron is investing up to $100 billion in a new fab projected to create up to 9,000 jobs. The CHIPS and Science Act reinforces this commitment.

There is also the tricky question of what is a domestic company. Until its IPO in 2020, GlobalFoundries, though based in upstate New York, was financed and 100 percent owned by Abu Dhabi’s sovereign wealth fund. And while GlobalFoundries has two major factories in the U.S., it also manufactures in Dresden, Germany, and Singapore; and has design centers in Beijing, Shanghai, Bangalore, and Sofia, Bulgaria, as well as Austin, Texas, and Santa Clara, California.

Environmental Ambivalence

Environmental activists are strong supporters of the shift to renewables. But many don’t care whether the chips and EVs are made in America as long as they are made using clean production processes and government policy accelerates the shift away from carbon.

Local environmentalists often resist the intrusion of fabs, solar farms, windmills, and power lines. Sometimes this is legitimate, as in concerns for offshore wind disrupting fisheries. In other cases it is aesthetic, as when solar farms or wind turbines are seen as spoiling pristine landscapes.

The irony is hard to miss. Much of the impetus for Biden’s industrial policies was environmental. Increased investment in renewable energy is needed to reduce carbon pollution and slow climate change. But many of these projects are either delayed by laws that were enacted in an earlier era to protect the environment, or because they entail tricky environmental trade-offs. Environmentalists will need to reconcile their desire to shift away from carbon as rapidly as possible with their wish for a pristine environment.

Another irony involves the double-edged role of Joe Manchin. Environmentalists have abhorred and blocked Manchin’s effort to use federal legislation to rescue the Mountain Valley Pipeline, which would carry natural gas from West Virginia to Virginia, by explicitly directing federal agencies “to issue all approval and permits.”

However, the rest of Manchin’s bill is far from crazy. It would set a two-year target for major projects that require environmental reviews, have government set a lead agency to reduce the fragmentation, require the president to identify and prioritize reviews for at least 25 strategically important energy and mineral projects, and allow federal overrides of state permitting requirements in some circumstances, particularly on electricity transmission. If the U.S. government is serious about targeted industrial policy, we need something like this legislation, stripped of its sweetheart provision for West Virginia.

In 2015, legislation called the FAST Act (for Fixing America’s Surface Transportation) included a provision known as FAST-41 for better coordination of environmental reviews at the federal level. However, project participation is voluntary. In principle, fast-track approvals could be accelerated without compromising core environmental goals. It’s another way government has to be retooled to make industrial goals a national priority.

Yet there is an inevitable tension between participatory democracy and large-scale industrial policy. We need to expedite these projects, but not to return to the days of New York’s Robert Moses and others in the urban renewal era who created special redevelopment districts with the power to bypass local democratically elected bodies.

And if we create super-approval powers for federally led industrial policies, it helps to remember that progressives are not always the government. The Prospect has written about the tension between blue cities and red states, which increasingly have written preemption laws to prevent the Austins and the Charlottes from enacting progressive local policies.

A national Republican administration could perform the same gutting of environmental (and labor) standards, if loopholes for fast-track permitting were added to the hard-won statutory mandates of the National Environmental Policy Act and the Clean Air Act. The dirty part of the Manchin bill is a reminder of the perils of tooeasy overrides of environmental standards and reviews.

Industrial Policy as Foreign Policy

America’s new progressive economic nationalism has extensive and thorny foreign-policy implications. It was much easier when the U.S. pretended that the location of production didn’t matter, and free access to U.S. markets was part of the glue of the Cold War alliance.

The key player who bridges the new industrial policy with America’s several foreignpolicy challenges is Jake Sullivan, Biden’s national-security adviser. The shift in Sullivan’s own thinking, from a traditionalist on trade and foreign-policy issues into more of an economic nationalist, has been key in reinforcing Biden’s own strategic priorities.

In a 2020 report for the Carnegie Endowment titled “Making Foreign Policy Work Better for the Middle Class,” Sullivan and his several co-authors wrote that “the prime directive of everyone in the foreign policy community—not just those responsible for international economics and trade—should include developing and advancing a wide range of policies abroad that contribute to economic and societal renewal at home.” This was a revolutionary shift in thinking.

For those who see industrial policy as key to regaining manufacturing and technological leadership as well as good middleclass jobs, there are several foreign-policy complications. “There is a risk,” says one senior participant in these debates, “that the foreign-policy goals will crowd out the industrial-policy goals.”

The top foreign-policy priorities for Sullivan and Biden today are holding together the U.S.-led coalition on two key fronts: supporting Ukraine, and containing China’s geo-economic and military ambitions. Both goals require Western unity, which is to say close collaboration with the European Union.

The EU is mightily aggrieved at Biden’s several industrial policies. To some extent, Europe did this to itself. Europe once had extensive industrial policies. But the EU’s founding document, the Maastricht Treaty of 1992, expresses a neoliberal view of how economies are supposed to work. It either bans or strongly discourages state subsidies at the national level and doesn’t replace them with pan-European targeting policies.

With its embrace of national economic planning, and Europe’s substantial abandonment of it, the U.S. and the EU have switched roles. In his summit meeting with Biden in December, French President Emmanuel Macron expressed Europe’s frustration that Biden had changed the rules, and complained the U.S. efforts to capture domestic production with explicit subsidies would come at Europe’s expense. In response, Biden spontaneously promised to “tweak” industrial policies to make them more Europe-friendly.

None of this had been staffed out, but it soon led to one tweak that could seriously undermine domestic EV production. The Inflation Reduction Act provides a $7,500 federal subsidy for purchasers of an EV, as long as the battery and its component materials are made in North America. But a separate provision on leased or commercial vehicles refers, ambiguously, not to “North America” but to either the U.S. or countries with which the U.S. has a “free trade agreement,” i.e., Canada and Mexico.

Senior White House and Treasury officials, looking for a large bone to throw Macron and the Europeans, creatively defined this provision to include Europe, based on various trade deals to which the U.S. and the EU are parties. Thus if you lease an EV, or buy one as a commercial purchaser, you get the full subsidy for vehicles made in Europe as well as the USA

“Treasury is simply following the tax laws and the IRA as written,” Kristin Lynch, a Treasury spokesperson, said, somewhat disingenuously, in a press statement. In fact, the whole deal was cooked up by Sullivan’s office.

The Treasury interpretation, released as “guidance,” will be finalized in March. How seriously this undermines the intended purpose of the EV tax credit depends on whether it is temporary or long-term. Domestic EV and battery producers do not have the current capacity to meet anticipated demand. If this is a temporary benefit to Europe, while the U.S. and the EU work out a broader industrial-policy entente, it actually serves U.S. interests of getting more EVs on U.S. roads while domestic production gears up. But if it is permanent, auto purchasers could just lease rather than buy, and the entire intent of the subsidy will be gutted.

One of the most emphatic critics of this invented loophole, of all people, is Joe Manchin. In the past, he has argued that if U.S. policy is promoting use of EVs, it should also be promoting domestic supply chains and production. In December, he wrote Treasury, “If these [leased European] vehicles are deemed eligible, I can guarantee that companies will focus their attention away from trying to invest in North America.” Manchin is planning to introduce legislation that would tighten the language of the credits.

EVs are just one of many areas where foreign-policy concerns—in this case, keeping the EU’s support for broader national-security goals—could easily water down industrial policy. There will be more such tweaks.

A Western Economic Alliance?

Going forward, the U.S. and Europe need some sort of grand bargain that allows both parties to subsidize innovation and production, but with a rough balance of benefits. This would take both the U.S. and the EU back to the pre-WTO and preMaastricht era, when managed capitalist economies were not prohibited from promoting domestic industries. Capitalism, tinged with social democracy, was far more equitable back then.

At a minimum, both the U.S. and the EU need to resist the temptation to haul each other before the WTO, which has become mercifully irrelevant. The U.S. has decided that it is going to subsidize innovation and production, and the WTO be damned.

One vehicle for this sort of high-level bargaining is the new U.S.-EU Trade and Technology Council, announced at the June 2021 U.S.-EU Summit meeting. For the United States, the TTC is co-chaired by U.S. Trade Representative Katherine Tai, Secretary of State Antony Blinken, and Raimondo. For the EU, the co-chairs are European Commission Executive Vice Presidents Valdis Dombrovskis and Margrethe Vestager.

There are ten TTC working groups, on a host of tech, trade, supply chain, and security policies. It is at this level that the U.S. and Europe will work toward common policies.

There is also awareness on both sides that the U.S. and the EU need to collaborate on the next generation of advanced technology and related production, and that the common adversary is China. In the case of 5G technology, Europe-based Nokia and Ericsson are key players. The U.S. and Europe need a common Western telephony network. Europe and the U.S. also have a common need to take back pharmaceutical supply chains from China, including the active pharmaceutical ingredients (APIs).

The Green Steel Deal of November 2021 gives a common tariff preference to steel and aluminum made with low-carbon production processes, deliberately including the U.S. and Europe and excluding Russia and China. That deal, branded as the Global Arrangement , is a template for other such agreements.

The U.S., however, has moved more aggressively than the EU in using an export control regime to deny Chinese companies access to semiconductors either made in the U.S. or made elsewhere using U.S. technology. The Biden administration keeps expanding its entities list, banning Chinese companies with links to the Chinese military.

On December 15, Alan Estevez, the undersecretary of commerce for industry and security, built off the original October announcement by restricting trade of hightech equipment with 36 additional Chinese companies. Among those added to the list is Yangtze Memory Technologies Corporation, a company that was said to be in talks with Apple to potentially supply components for the iPhone 14.

The EU does have some security restric - tions on trade with China, but the U.S. regime is far more explicit and aggressive. In principle, there is recognition on both sides of the Atlantic that Western nations that share a commitment to the rule of law and transparency in economic arrangements need a common strategy to contain China. But while the U.S. is deliberately raising barriers to work in or with China, Germany continues developing commercial relationships with Beijing. In November, German Chancellor Olaf Scholz led a delegation to Beijing with executives of Germany’s leading companies, frankly looking for new business partnerships.

This is another area where national-security concerns could trump industrial-policy goals. It will be tempting for Sullivan and Biden to offer Europe more loopholes in U.S. industrial policies in exchange for a tougher common China policy. In the bargaining process, there will be plenty of skirmishes. But both sides seem committed to prevent them from escalating into an open breach.

Despite the practical challenges of fusing the several industrial and tech policies of the Biden presidency into a coherent national economic strategy, the achievement is formidable as a fundamental change of ideology and national purpose. Along the way, there will be failed ventures and technological bets that don’t pan out, just as there are in the private sector.

Given the centrality of private industry in these new efforts, at a time when corporate America wields immense political power, it is too easy for Biden’s administration, especially the Commerce Department, just to give industry whatever it wants. That makes it all the more imperative for the labor movement and its allies to push Biden hard to do more for unions as well as for workers.

Histories of industrial policy during World War II show a process that was often messy and wasteful. Yet it produced towering American progress in new technologies and weapons systems that not only won the war but anchored domestic industrial leadership for a quarter-century afterward.

What’s impressive is that the several Biden initiatives, most of which originated in cross-party deals in a polarized Congress, do add up to a potential strategy for restoring American industrial and tech leadership. Making it all live up to its promise will be no mean feat. n