Biden’s industrial policy: Will it rebuild the US economy?

Tony Wilsdon, Socialist Alternative (ISA in the United States)

(This article was first published on 19 April 2024)

The term Bidenomics has entered political discourse in the last year. First used as a derogatory term, it has now been embraced by the Biden administration as a principal reason for its re-election to office.

However, approval of Biden’s economic policies is at an all-time low. Working people feel worse off today than when Biden was elected. The administration abandoned its electoral promises to make permanent the expansion of social policies enacted due to COVID-19; it failed to lower the eligibility age for Medicare to 60; failed to cancel the student debt and failed to create a public option for health care. Then it used age-old capitalist policies of raising interest rates, willing to trigger a recession in order to lower inflation. In the meantime, prices for basic commodities, including housing, skyrocketed, hitting working people hard in their pocketbooks.

These policies are in many ways indistinguishable from those of previous administrations that put the interests of Wall Street and capitalism before working people. They fall within the usual function of the US government defending the interests of big business, not working people and the poor.

But a key difference between the situation today and 15 years ago is intensifying inter-imperialist conflict. Biden’s policies have focused on strengthening US capitalism to compete with the rise of China. This includes an escalation of the tariff war begun under Trump into a wider economic war.

Biden’s industrial policy

What sets apart the Biden administration is the adoption of a national industrial policy. He has looked to use the state to encourage a retooling of the economy in key areas of technology. This is a break from decades of neoliberal policies – i.e. letting international markets decide areas of investment. It is this aspect of economic policy that is the most unique feature of “Bidenomics.”.

However, the Biden administration’s funding of specific projects within US borders is by its nature protectionist. This has already resulted in other countries following suit to protect “their” industries. Over time, protectionism undermines the global economy and helps to deepen crises, as it did during the Great Depression of the 1930s.

Three major bills were passed during Biden’s administration: the Infrastructure Investment and Jobs Act (IIJA) in 2021; and the CHIPS and Science Act and the Inflation Reduction Act (IRA) in 2022. In total, they are projected to generate a total of $2 trillion in investment over the next few years.

The CHIPS and Science Act is focused on improving R&D in technology, medicine, biotechnology and all of the R&D agencies. Investment was disbursed through federal agencies around the country. This totals $52 billion, and is a return to the kind of approach used by the US government in the postwar period to provide investment in key areas of science.

The IIJA, with spending of $550 billion in new investment over five years, is focused on updating the electrical grid and developing broadband in rural areas. Again, these are very traditional bills, with both bills being bipartisan, and can be compared to federal spending on the national highway system in the 1950s, and the space race in the 1960s.

The IRA was passed with only Democratic votes. It will provide $400 billion for an array of public loans, grants and tax breaks to build out an improved renewable energy system and at the same time to stimulate manufacturing growth. The idea is to coax the flow of private investment towards socially and environmentally useful projects. The IRA was scaled back from the original plans due to opposition from both parties who are both funded by the fossil fuel industry.

However, the Democrats refused at any point to put a proposal for a massive new Green New Deal, funded by taxing the big corporations, the idea for which gained so much support during Bernie Sanders’ presidential runs.

All these spending bills leave decision-making about investment in the boardrooms of giant corporations whose only interest is profit maximization. These corporations have no interest in providing for the needs of the planet or the majority of its inhabitants. Their only interest is to maximize profits. This is a recipe for total failure.

The total allocation for these programs is $2 trillion, and it is estimated they will directly create 1.3 million jobs. As large as this is, it pales in comparison to the scale of the endemic problems of falling living standards and the looming environmental catastrophe. This amount of $2 trillion over several years should be compared to the staggering $7 trillion of subsidies for fossil fuel companies globally in 2022 alone, partly in response to the war in Ukraine, as reported by the IMF. This demonstrates the total dysfunction of the present system and its complete inability to seriously address climate change.

National industrial policies 

This turn to a national industrial policy is a shift from neo-liberal policies of recent decades. It is the result of the failures of neoliberal globalization to provide decent living standards for workers and support decent social programs. Neo-liberal policies were centered around boosting corporate profits by seeking lower-wage labor overseas and generally removing any obstacles to the movement of capital. Neoliberalism meant a massive attack on workers’ rights and living standards which provoked mass revolt around the world. This, along with growing conflict between the US and China, has pushed the US ruling class down a new path which includes this industrial policy.

The Biden administration is attempting to create a national resurgence of industry in the US focused on “strategic sectors” in the New Cold War. By leaving decision-making in the hands of big business, the Biden administration is relying on corporate CEOs and the capitalist market to deliver the goods. Under capitalism, investors and corporate CEOs are only interested in profit maximization. This means putting a product on the market and finding a buyer. If a buyer can’t be found, the corporation will need to shut down production and go bankrupt.

Dysfunction of capitalism

Capitalism is plagued by repeated, convulsive crises. These are rooted in capitalism’s inherent tendency towards overaccumulation of capital which inevitably leads to crises including bursting financial bubbles and gluts of goods that can’t be absorbed by the market.

At present a number of countries, for example countries in Europe and India, are looking to match Biden’s spending on chip technology. In other words, stimulus programs are ramping up around the world to increase the production of chips. This is part of the lack of any coordinated plan under capitalism.

But, there is already a global glut of chips in 2023. Christopher Cytera, a senior fellow at the Center for European Policy Analysis (CEPA), states that the subsidy programs could “end up spent on white elephant chip-manufacturing facilities, producing a global glut.” This is a recipe for a shakeout in the market and bankruptcies.

This will be further exacerbated by the coming economic recession. Since corporate CEOs and banks will only invest if they see a market for their future production, the result is that many of these investment plans could be shelved. The money will be redirected into financial markets, including speculation on money markets. Since money cannot on its own create new wealth, this leads to the creation of speculative bubbles and then their collapse and recurring economic recessions.

Central to the problems of capitalism is that the source of profits is the exploitation of the labor of workers (of course, corporations also exploit the environment, which is treated as a free good by the capitalists). The bosses pay a worker less than the wealth their labor produces. This means that workers across the economy have less buying power than the products produced. Since ‘workers’ are also ‘consumers,’ and consumption makes up over 70% of the market in the US and other countries, the consequences are huge.

While the bosses can keep the economy rolling along temporarily by extending credit and loans, this is only temporary. This gap between the quantity of goods being produced and the ability of workers to buy goods inevitably leads to the creation of vast amounts of capital which can’t be employed profitably in expanding production, The result is financial bubbles, for example the subprime-loan housing crisis in 2008 and the crypto-currency crash in 2023.

Biden’s attempt to stimulate spending in new technology will hit all these roadblocks inherent to capitalism. No amount of incentives will convince big corporations to produce goods where they don’t see a buyer. This of course won’t stop corporations taking the money on offer, whatever the ultimate consequences.

Recession on the horizon

A recession is capitalism’s way to correct for its inherent recurring crises of overproduction. In its insane way of functioning, too much production leads to a crisis – due to the fact there is no overall national or international plan of production. Each capitalist, or nation, races to dominate the market with their products with no view of the global consequences of their actions.

In a recession, bubbles burst, factories close, and workers are laid off until global markets stabilize to equalize supply and demand. Capitalism is a sequence of booms and busts, with the working class paying the price in layoffs and downward pressure on wages. The consequence is workers’ living standards are degraded and working conditions decline. The need to urgently address climate change is swept aside as budget deficits lead to cuts in social programs. All along, big business will demand that its paid politicians offer corporate bail-outs over any concern for the environment or suffering workers.

Bidenomics will fail

Bidenomics is essentially an attempt to put a new band aid on a deep structural crisis of US capitalism. It is an attempt to boost US business in competition with their rivals. It will redirect some investment to US corporations, but it is incapable of solving the wider crisis. It does almost nothing to raise living standards for workers in those industries targeted for investment. It is an abandonment of any serious attempt to reverse the overall decline in living standards for workers, or to retool the economy and address global warming.

This spending by the Biden Administration will undoubtedly give a boost to the shift to electric vehicles (EVs) in the US. However, the lack of a national battery-charging infrastructure, and protectionist limits on batteries and other technology from China which would speed up the technological advance of comparable industry in the US, could seriously weaken this process. The lack of government spending on public transportation also prevents millions of workers moving away from transportation based on automobiles. These failures will slow the transition from an economy based on fossil fuels.

In fact the shift to EVs internationally will exacerbate protectionist pressures. Chinese companies such as BYD are currently producing high quality EVs in massive quantities, at a significantly lower cost than their Western competitors. This directly threatens US and European domestic EV production. The result will be the imposition of massive tariffs. Such protectionist policies exacerbate the slowdown in the world economy and make it far more crisis prone.

The policies necessary to achieve a transition to renewable energy are understood. It requires massive investment in green technology to retool industry away from fossil fuels, with living wage jobs and union rights. This was a cornerstone of Sanders’ popular presidential campaigns. But, to achieve this would mean ending massive subsidies to the oil and gas industries, taking decision-making out of corporate boardrooms, and implementing a national energy plan with publicly owned banks to ensure rich private owners don’t end up siphoning off the profits. This would require taking into public ownership the massive energy companies, since corporate CEOs will refuse to implement such a plan.

Since the Democrats and Republicans are funded by these same corporations, and they therefore promote their interests, the reasons why these policies are lacking from the Biden administration’s plans become crystal clear.

It is for this reason that Socialist Alternative calls for a political break from both major pro-capitalist parties, the Republicans and Democrats, and for the formation of a new working-class political party. Such a party would fight for socialist policies like a living wage of at least $25 an hour; a green new deal; a national health care system, free at point of use; and a massive program to build affordable high-quality housing.

To fund this, we call for a tax on the super-rich and Wall Street, for democratic public ownership of polluting industries as well as the richest corporations and banks who profit off the backs of our labor. To implement these policies will mean breaking with capitalism and big business and building a new socialist society around a democratic plan or production that puts working class people first and not big business.

For a new working-class political party

Both parties have injected arguments about the “lesser evil” since time immemorial. While Trump 2.0 undoubtedly represents a serious threat to the interests of workers and the oppressed, it is the Democrats’ total failure to act in the interests of working people that has created this danger. The failures of the Democrats to act in the interests of working people is inherent in its DNA. They always betray their promises to the working class. It is not an accident that they blame individual Democrats like Joe Manchin for their failure to act. (He received the highest level of fossil fuel funding of any politician of either party in the Senate.)

The leaders of the Democratic Party have a policy of deliberately recruiting conservative candidates so they could better appeal to disillusioned Republican voters. They deliberately ignore the 50% of the public, mainly working-class voters, who are too disillusioned with corporate-money politics to even vote. They are more scared of upsetting their corporate funders, than improving the conditions for working people.

The overall result has been both parties pushing policies that shaft the working class while filling the pockets of the super-rich. It’s time to break the cycle of voting Democrat or Republican and build a new party committed to socialist policies. The hunger for change has been expressed in the Democratic primaries in the significant vote for “uncommitted.” In November, we encourage working people to support independent left candidates Cornel West and Jill Stein as a step in the fight for a new party.