Robert Pollin on Industrial Policy, Innovation and the Way Out

Robert Pollin correctly points to the efficacy of industrial policy and the extremely efficient means of generating innovation by guaranteeing a market, by advance procurement guarantees. This is also an intro to you for Real News Network. Go there. Subscribe. Good stuff.


Transcript

JAY: We've talked in previous interviews about stimulus and how it affects the economy.

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POLLIN: Well, it is an important debate, because of course given the current severe recession, people look back to the '30s and what got us out of the Depression. And it's very clear that for the whole decade of the 1930s we had a lot of social programs aimed to stimulate the economy—the Work Projects Administration, Civilian Conservation [Corps] board, etc.—and they conducted those through the '30s, and they didn't really get us out of the Depression. And then World War II hits, and we go from 13 percent to 2 percent of employment within a year. So the story is war is the answer to depressions.

JAY: And then part of the right-wing critique is, the other piece of that story is: and government stimulus to create jobs is not.

POLLIN: And government stimulus on anything other than war is not. Now, that's not the crux of the matter. The real crux of the matter is that it was government deficit spending, borrowing money and spending, injecting that into the economy, that got us out of the 1930s depression, and the war was the only thing that had the political support to raise the level of deficit spending necessary to overcome the Depression.

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if you actually add up military spending versus domestic spending, comparing, dollar for dollar, $1 million on the military versus $1 million in education or clean energy, military spending is actually a bad job stimulus. Education, clean energy, health care, those are much more effective as a job stimulus. The only issue is politically whether we can move enough money into those areas to become effective sources of new job creation.

JAY: So how do you know that?

POLLIN: Okay, this is recent research that I've done based on US statistics from the Department of Commerce. Using the input-output model from the Department of Commerce, what we basically find is as follows, that if you spend $1 million on the military, you create 12 jobs; if you spend $1 million on clean energy, you create 17 jobs; if you spend $1 million on health care, you create 20 jobs; if you spend $1 million on education, you create 29 jobs.

JAY: So why? Get into the actual nitty-gritty.

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POLLIN: Okay. So there's basically two factors going on here. Number one is how much money you spend domestically versus how much you spend abroad. Obviously, military spending has a high proportion of spending abroad, and that's not going to create jobs in the US. These other areas that I mentioned—education, health care, clean energy—are much more focused on the domestic economy.

JAY: But isn't most of "abroad" still American weapons produced here, food supplies in little packages produced here?

POLLIN: Yeah, there is, but still, when you're sending checks, for example, to soldiers abroad or you're building Camp Victory in Iraq, that's work that's being done in Iraq, and there's a lot of money doing that.

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Or Operation Enduring Freedom in Afghanistan, whatever we might think about it in political terms, as an economic phenomenon it's happening in Afghanistan and Pakistan. So in terms of job creation, that's sucking money out of the US, where you can be creating jobs here. And the second factor is what we economists call "labor intensity", which is the relative amount, when you spend $1 million, the relative amount that goes to hiring people versus spending on machine, on land, on transportation, on energy. And so investing in education, investing in health care, and investing in building a new, clean-energy economy entail much more use of people and rely less on these other costs.

JAY: How does the—and I don't know if you call it a ripple effect, but, you know, I've heard it talked about in domestic economy, if you spend this dollar, you get more of a ripple than military dollar.

POLLIN: Yeah. Exactly.

JAY: It's not just the foreign factor. What else is it?

POLLIN: There are two kinds of ripples. So number one, if we're going to, say, hire people to be in a school or if we're going to retrofit a building, we first of all have to hire people, other people in the school, not just teachers: we have to hire people in the front office; we have to hire people serving lunch; we have to hire bus drivers. Then that's one set. We also have to buy new books. So that provides employment for people working for the book publishers. Then there's people that—all those people that newly have jobs also have money in their pockets, and they spend it. And in their communities that stimulates markets and stimulates activity in their communities. So those are the ripple effects. And those ripple effects are very important, and they're bigger the more concentrated you are in the domestic economy, communities, versus having the money go out.

JAY: Now, part of the issue of war, especially these days, it's not about—they're not selling it based on the economic stimulus; they're selling it on the national security threat, terrorism.

POLLIN: Right, right. Sure.

JAY: So in terms of the decision people have to make, it's not just an economic decision here.

POLLIN: No, of course not, it's not an economic decision. Yet in the debate around the Pentagon budget, for example, the job issues became central. And, in fact, the rhetoric was: we can't possibly cut his weapons program because it's so important for jobs. Now, okay, we did cut—.

JAY: Which goes to this idea of why they produced parts for an airplane in 50 states, so everybody's got something in it.

POLLIN: Yeah, yeah, yeah, yeah. Just a coincidence. No, of course it's because we can create jobs in all these states. And that's true: if you spend $1 million, $1 billion, $100 billion on anything, if anybody spends it, you will create jobs. The question, the real relevant metric, is how many jobs relatively, from one activity versus another. And militarism is a bad source of job creation. These other areas are much stronger as sources of job creation.

JAY: Yeah, you've seen this in the fight over the F-22. The ads from the manufacturer were all about jobs. It wasn't that we need this plane to fight wars; it was all about employment.

POLLIN: That's right. So the F-22 got cut, but the F-34 [sic] was strengthened. There is no change in the overall budget. And my own senators—I mean Kerry, Senator Kerry, supposedly liberal senator from Massachusetts, voted for the—he cut the F-22, expanded the F-34. Why? Because he said we need the jobs in Massachusetts. What we really need are jobs in more effective ways. If you put the money into the educational system, into building a clean-energy economy, we'd have more jobs.

JAY: So it goes back to your first point. When you have the rationale of fighting terrorism, and you have the kind of great moral support for war, then you can get your economic benefits justified through that way. But you can't get, now, the political support for straightforward infrastructure spending.

POLLIN: Right. I mean, the point is—politically, the military story is we need this to fight terrorism, and it's great for jobs. We can debate whether it's great for fighting terrorism. I can tell you flat out that it's not great for jobs. It's bad for jobs relative to other ways of spending the same amount of money.

JAY: Well, so in the next segment of our interview, let's talk about this argument that widescale, large militarization has been one of the driving forces of this successful American economy, both in terms of innovation and on other fronts. So please join us for the next segment of our interview with Bob Pollin.