President Joe Biden has placed his economic record at the heart of his bid for reelection. His State of the Union address in March emphasized the achievements of his administration. “I inherited an economy that was on the brink”, he said. “Now our economy is the envy of the world”. Even though polls show that many Americans are skeptical of such a claim, the data suggest that the U.S. economy is in good shape. Unemployment remains low at 3.9 percent, inflation is down to 3.5 percent from its peak of 9.1 percent in June 2022, and consumer spending is growing robustly even as GDP growth has slowed from its more frenetic pace in 2023.
Biden can point to several pieces of legislation passed during his tenure that help account for this relative success. The Inflation Reduction Act (IRA), the CHIPS and Science Act (CHIPS), and the Bipartisan Infrastructure Bill are at least partially responsible for recent gains, leading to public investment totaling about $537 billion and spurring investment commitments from the private sector that are estimated at $866 billion and expected to grow into the trillions, with investment in manufacturing adding about 0.4 percent to GDP last year. This wave of public funding comes at a time when the British and other European governments continue to flirt with austerity even as their economic performance lags behind that of the United States. Biden’s large-scale investments in industrial policy mark a departure from previous administrations and have triggered a sea change in both domestic and global policy debates.
But notwithstanding the statistics, many Americans continue to feel that the economy is not working for them. Abiding structural weaknesses, including weak labor laws, underinvestment in accessible education and health care, high rates of indebtedness, and rising income and wealth inequality, mean that most Americans are not experiencing the gains of the current recovery. Citing abstract numbers to persuade a public that is still pinching pennies will do little to win over skeptical voters who do not trust that the system is working for them.
To convince Americans that a second term will allow them to reap the full benefits of Biden’s new industrial policy, the administration must make progress on implementing the structural reforms needed to truly expand the U.S. economy from the “middle out and bottom up”, as the White House described its economic ambition in June 2023. This will require a much broader and bolder approach—one that doesn’t shy away from arresting the heavy financialization of the country’s corporate sector.
The return of industrial policy
Since coming into office in 2021, the Biden administration has pursued an agenda of economic renewal that explicitly seeks to depart from both the old assumption that economic benefits will invariably “trickle down” to ordinary Americans and the inclination for deficit reduction and austerity that swept through the world in the wake of the 2008 financial crisis. The administration has embraced investment-led growth, largely through supply-side measures, including grants, loans, tax benefits, and other incentives. Biden’s focus on industrial policy marks a notable shift. Although government intervention in the economy is nothing new—indeed, Silicon Valley would not have emerged without it—U.S. leaders have long shunned industrial policy as running counter to the accepted wisdom that the state must only create the conditions for markets to operate, fix market failures when they occur, and otherwise stay out of the way. By making industrial policy a centerpiece of his economic strategy, Biden has made it possible to have a thoughtful policy debate about what kind of growth the United States wants and who it should benefit.
Biden’s industrial strategy has been rolled out through legislation such as the IRA, CHIPS, the Bipartisan Infrastructure Bill, and the American Rescue Plan, with a focus on raising the productive capacity of the U.S. economy and on place-based investments, in particular in distressed regions. These measures reflect a desire to promote greater economic inclusion and higher standards of living and to cut greenhouse gas emissions.
Building a more inclusive and sustainable economy is an uphill—but vital—battle. Systems of corporate governance in the country continue to prioritize the interests of shareholders over the wider set of actors who create economic value. Financial markets have decoupled from the real economy, with investments often concentrated in finance, insurance, and real estate firms. Moreover, companies in the real economy, such as those in pharmaceuticals and manufacturing, are spending more on share buybacks than on productive activities such as worker training, infrastructure and technology upgrades, and R & D. Share buybacks in the United States (in which firms repurchase their own stocks to inflate their stock prices) have been on the rise for several years, reaching $795.1 billion in 2023, and are expected to increase this year. Companies have spent over $4 trillion in the last decade in share buybacks. Buying back shares boosts stock prices and stock options—and, as a result, executive pay—at a time when income and wealth inequality in the United States is increasing. Union membership has steadily declined from more than 30 percent in the 1950s to around ten percent today, wages have lagged productivity since the 1970s, and the income share of the top one percent of earners has risen from about ten percent in the mid 1970s to about 20 percent today. Equally concerning is the flatlining of intergenerational mobility. These economic trends help explain the disquiet and anger that has boosted Biden’s challenger, former President Donald Trump.
A new social contract
To truly benefit working people, U.S. industrial policy must help bring about a new social contract between the state and business and between capital and labor that is focused on the common good and on restoring public trust in the state. It can redefine the terms of these relationships. Governments can make access to public funding and other benefits bestowed by the state conditional on firms behaving in ways that maximize public value. For example, a firm that receives loans or tax benefits from the state could be required to ensure that the goods, services, and technologies it produces remain accessible and affordable and to share its intellectual property with others. The U.S. government invests over $40 billion in drug innovation through the National Institutes of Health but has not yet worked to ensure that the taxpayers funding a drug’s development are not charged excessive prices. Although such conditions were notably not embedded in the production of the Pfizer-BioNTech COVID-19 vaccine, they were in the Oxford-AstraZeneca vaccine because Oxford University researchers made the vaccine’s future accessibility a condition of their collaboration. Public financing should also come with provisions that require firms that receive public funds to share a portion of their profits with the public sector and to promote the reinvestment of business profits into productive activities, such as worker training and R & D.
To its credit, the Biden administration has begun moving in this direction. CHIPS, for example, imposes conditions on companies that receive public support. Participating firms cannot use the funds received to conduct share buybacks and are required to put in place plans for training workers, provisions for expanding worker access to childcare, and commitments to sustainable manufacturing practices. Nonetheless, critics from trade unions are concerned that these measures are too flexible and do not go far enough. For example, they do not set minimum standards for pay across all recipient companies, prevent share buybacks altogether, require community benefit agreements that help serve residents in economically disadvantaged areas, or protect the right of workers to organize.
Other critics claim such measures blur the lines between industrial and social policy and insist that the primary goal of public investment should simply be to increase production and productivity. But businesses remain keen to receive support through CHIPS: as of February, the government has received more than 600 statements of interest from companies in 42 states. Embedding social and environmental provisions in industrial policy investments not only allows public money to work better for the public good; such provisions can also make industrial policy more effective. Provisions related to climate goals, for example, if designed well, can help accelerate transformations that will make U.S. industries more globally competitive (as was the case for the German steel sector, which benefited from public financing conditional on reducing the carbon emissions of steel production). Protecting the interests of workers helps maintain good relations between owners and labor, avoiding the disruptions of strikes such as last year’s action by the United Auto Workers (UAW). This is not to say that industrial policy should become the vehicle for advancing all social and environmental priorities. Moreover, the contracts between the private and public sectors must be thoughtfully and creatively designed to set clear standards and goals without being overly proscriptive about how companies must meet them, which could stifle innovation.
No industrial policy will be successful if it ignores the interests of U.S. workers. As I argued in a previous essay for Foreign Affairs, the UAW strike underscored the importance of worker rights, representation, and fair compensation in the transition to a green economy. If the workers producing the batteries for electric vehicles are earning wages that are below industry standards, the green transition will not be a just transition—and without worker and public support, it will stall. Biden has promised on several occasions to be the most pro-worker and pro-union president in American history. Although he has offered strong symbolic support (in September 2023, Biden became the first sitting president to join a picket line), he needs to do more in terms of policy. In addition to providing fair wages, worker training, and access to benefits such as childcare (in the case of CHIPS), companies receiving public support could, for example, be required to allow for worker representation on their boards—an approach that is more common in Europe and that can foster a long-term view in management and integrate valuable perspectives into decision-making that are grounded in a firsthand understanding of company operations.
To advance a broader transformation—one that extends to all companies, not only those that receive direct public support—the administration should prioritize labor law reforms and consider tools such as sectoral bargaining to empower workers and rein in the primacy of shareholders. Typically, labor contracts are negotiated between particular firms and their workers. Sectoral bargaining requires that workers, businesses, and government sit together to negotiate common standards for an entire sector or industry—ensuring that those firms that treat their workers well are not at a disadvantage. This approach already exists in certain states, such as California, Colorado, and Minnesota, which have passed laws to establish councils or boards composed of representatives of labor, business, and government charged with setting sector-wide standards.
SHAPING THE MARKET
Industrial policy can also achieve a wider goal. The role of government is not to promote growth for growth’s sake but to direct growth so that it benefits more people and is sustainable. Similarly, its role is not only to fix market failures but also to shape markets. U.S. industrial strategy could produce immense positive change in numerous areas, including in health care, housing, and efforts to combat climate change. Doing so will require bolder action. Until now, U.S. industrial policy has relied heavily on tax measures, such as those embedded in the IRA. But going forward, if Biden wins reelection, industrial policy should draw upon the full suite of government powers to cultivate a wider array of policy tools and institutions.
Take, for instance, the country’s enormous purse. The U.S. federal government is the largest purchaser in the world, spending over $630 billion annually on products and services, making public procurement a powerful tool for shaping markets. By judiciously choosing what to buy and whom to buy from, the U.S. government can create new market opportunities for businesses and catalyze investment and innovation that aligns with both industrial policy goals and societal and environmental objectives. The government is already beginning to leverage this budget to create markets that will drive innovation in critical industries; it is requiring, for instance, that public procurement of construction materials prioritize low-carbon options. The administration should consider scaling up this initiative to incentivize the reduction of carbon emissions in markets such as agriculture, aviation, shipping, and other sectors in which decarbonization is difficult. It could also expand the use of strategic procurement to further other goals. For example, the government could make procurement from pharmaceutical companies contingent on their guaranteeing affordable access to their products.
A new, green national development bank would also enable a swifter expansion of clean energy projects and low-carbon production. National development banks exist around the word. Notably, Germany’s national development bank, KfW, has played a crucial role in the country’s efforts to decarbonize its economy, lending, for example, to green technology firms and to solar and wind power projects. The U.S. government could establish a similar national bank, building on existing plans for a greenhouse gas reduction fund under the aegis of the Environmental Protection Agency. This bank, working in partnership with state-level green banks, would complement the slate of tax incentives, grants, and other policy measures currently in place to encourage decarbonization. For example, the bank could issue low-interest loans to help sweep aside the impediments (in large part connected to rising costs caused by inflation) that are currently blocking the expansion of offshore wind facilities.
Despite the strength of the economic recovery in the United States since the COVID-19 pandemic, Biden is trailing Trump, his Republican rival for the presidency, in many key polls. Trump blames Biden for the struggles of many Americans, but blame should really lie with the structural problems that too few presidents have addressed. Biden needs to show he will go after the causes, not only the symptoms, of this malaise. To do so, he must convince the American public that he has a plan for building on the early successes of his industrial strategy in a way that will benefit both businesses and workers and bring about an economy that is resilient, sustainable, and inclusive—socializing not only the risks but also the rewards.
Mariana Mazzucato is Professor at University College London (UCL), Founding Director of the UCL Institute for Innovation and Public Purpose, and the author of Mission Economy: A Moonshot Guide to Changing Capitalism. Sarah Doyle is Director’s Head of Policy to Professor Mazzucato at the UCL Institute for Innovation and Public Purpose.