wkmac
Well-Known Member
Knowledge@Wharton: I wonder if we can start with an article from the Washington Post that you sent me some time ago. The article said that Air India obtained cheap loans funded by U.S. taxpayers to buy aircraft, which it then used to launch non-stop flights between New York City and Mumbai. This created jobs for the Boeing workers, of course, who made the planes. But Delta Airlines, which had offered non-stop flights to India, could not stand up to that competition and had to discontinue those flights, which presumably harmed other U.S. workers. Why does this happen? And what are the implications for industrial policy?
Pack: Let's start in the beginning. "Industrial policy" is a set of policies which either provides subsidies ... to firms which are currently producing, or protects them from foreign competition in one way or another. Usually the aim is to change the structure of production. In this case, it was to encourage the sale of Boeing planes. But as you point out, it has what economists usually call "general equilibrium effects" or "knock-on effects" -- effects that hold a large number of implications for workers in other industries, as in this case, Delta. So the major effort here was to match stimulus that comes from other countries.
The U.S. is constantly trying to help Boeing relative to Airbus. Airbus has been the beneficiary of huge ... subsidies from some of the European countries that participate in its production. The ultimate economic effects are very dubious, because, as you pointed out, the number of Delta employees decreased. On the other hand, the number of employees at Boeing went up. You're never sure about the total impact. But employment should not be the only consideration. One consideration is clearly, what is the effect on the gross national product of the U.S.? This kind of subsidy usually has not had a beneficial effect in the long run on the U.S.
The political pressures are quite clear. Henry Jackson, who used to be senator from the state of Washington, was called the "Senator from Boeing." He was a very effective senior senator, very good at protecting Boeing. Others are very good at protecting, say, the beet sugar industry. But most of the time it's to the detriment of consumers and taxpayers. So what we basically see is a set of political trade-offs without much in the way of careful attention to the economic effects.
[h=2]Does It Make Sense to Have an Industrial Policy? Ask Howard Pack[/h]
