Ford Motor Co. and Industrial Policy

The U.S. government is giving the Ford Motor Co. a $9.2 billion loan, by far the biggest infusion of taxpayer cash for a U.S. automaker since bailouts during the 2008 financial crisis, to build three battery factories in Kentucky and Tennessee.  Neither Ford nor the Energy Department (DOE), which provides loans at far lower interest rates than those available in the private market, have revealed details about the loan.

The U.S. is taking a page from Beijing’s playbook.  China has a top-down industrial policy, with serious government planning and support of target industries. China’s sustained industrial policy has yielded the world’s largest battery manufacturers.  Between 2009 and 2021, the Chinese government poured more than $130 billion of subsidies into the EV market, according to a report last year by the Center for Strategic and International Studies.  Today, more than 80 percent of lithium-ion battery cell manufacturing capacity is in China.

Simply put, industrial policy means that centralized agencies formulate national visions and programs to develop specific industries.  It has been a toxic phrase in American politics.

As Gary Becker, who won the Nobel Prize for Economics in 1992, said, “The best industrial policy is none at all.” It has long been associated with pork barrel politics, picking winners, and crony capitalism.  The political rhetoric has been that the free market works best and is closely associated with freedom and democracy. The history of the U.S. does not square with this perspective.

On the surface, Ford would seem an unlikely party to receive the largest loan ever extended by the Department’s Loans Programs Office.  Just last month, Ford touted having almost $29 billion of cash on its balance sheet and more than $46 billion in total liquidity.  It is worth nothing that one of the best known loans made by the DOE was $465 million to Tesla in 2010 to support manufacturing of the Model S.

Ford aims to close the gap with Tesla on electric vehicles, just as the U.S. aims to close a similar gap with China. Ford told investors early last year that it would put $50 billion into its EV manufacturing efforts. By the end of 2026, the company wants to make two million EVs a year.

Starting with Alexander Hamilton, the first Secretary of the Treasury, who outlined a strategy for promoting American manufacturing both to catch up with Britain and provide the material base for a powerful military.  Hamilton’s “Report on the Subject of Manufacturers” promoted the use of subsidies and tariffs.  Similar practices have been expressed in various forms throughout American history.

During the 19th and 20th centuries, the government played an active role in promoting economic growth, using policies such as high tariffs to protect strategic industries, federal land grants, and subsidies for infrastructure development. The federal government has sometimes backed failures, but it also has remarkable success stories, such as nuclear energy, computers, the Internet, and building the interstate highway system

These days, industrial policy is viewed more positively, spurred by bipartisan concerns about the competitive threat China poses.  U.S. programs are now underway to cover semiconductor production, development of critical technologies, to secure key domestic supplies and support industries that are considered strategically important.

For example, subsidies from the Inflation Reduction Act and Infrastructure Investment and Jobs Act are spread across the EV value chain and are carpet bombing the entire automobile industry.  There are tax credits for sourcing critical minerals within the U.S. or friendly countries, for manufacturing or assembling the batteries and EVs they go into, for the consumers who buy the vehicles, and even for anyone building the public chargers needed to keep those vehicles moving.

The debate over industrial policy will continue because it gets to the longstanding controversy over the role of the government in our economy.  One thing is clear: the rosy rhetoric about the U.S. not engaging in industrial policy is contradicted by the country’s history.

Technology is Disrupting the Transportation Industry

The increasing pace of change is a defining feature of our times.  This is one of the most discussed topics among consenting adults, right there with the ongoing debate about what exactly constitutes a recession. Far more than those who lived during the Renaissance or the Industrial Revolution, people are self-consciously aware of the transcendent characteristic of this period in history.

Americans truly live in an age of innovation. Even the most conscientious technophobes find it difficult to ignore the waves of technological change that are rolling through the global economy.

One challenge to implementing technological advances is outdated regulatory structures.  The pace of change far outstrips government’s ability to serve the public interest by managing and regulating these new developments. Government at all levels needs to rethink the application of old-style bureaucratic tools to today’s fast changing high tech industries, especially when it comes to transportation.

A healthy transportation system is the lifeblood of American commerce and industry and is central to America’s ability to compete with its economic competitors, particularly China. Indeed, there is a robust link between the level of transportation investment and the nation’s ability to increase its productivity.

Technological innovation is transforming the transportation system.  In addition to the number one trend – the move to electric cars – there is autonomous driving – not just for cars but for low-cost micro-mobility – ride-sharing; in-vehicle connectivity; 5G wireless technology;  companies like Uber and Lyft adding to the concept of on-demand mobility; robotics, such as robo-taxis that are currently operating in Phoenix and San Francisco; and mobility technology, to name just a few salient trends.

Consider mobility as a service the holy grail. Ideally it would offer customers the ability to plan, book, and pay for transportation services by digitally connecting to a variety of public and private transportation options across all transportation modes.

The future of transportation is being shaped by a convergence of these trends – a huge set of disruptive forces to reckon with. While it is extremely difficult to predict when these new technologies will be ready for prime time and their rate of proliferation and adoption, it is important to understand and consider the impact they will have on mobility and the transportation system.

Such improvements could help reduce the costs of traffic congestion, which some experts believe cost the economy over $120 billion per year; road accidents, which killed nearly 43,000 Americans in 2021; air pollution, which contributes to health problems like respiratory ailments; improving mobility for seniors and individuals with disabilities; and other societal benefits.

Underscoring the discussion about the rate of technological change is the major implications advances in mobility will have for urban centers as they determine how to tailor new mobility approaches within each city context.

Just as the Federal Communications Commission manages the airwaves for the public good, so, for example, must cities manage their streets and public transit.  Their challenge is to become mobility managers, leveraging all the new technology to provide better and safer service to their riders.

There are opportunities and threats that cities have never encountered before, presenting a daunting challenge to the current crop of public sector managers. They might not be willing to buck the status quo and reimagine the future of mobility, especially in their quixotic quest to improve mobility, particularly in cities where transportation assets are reaching the end of their expected life span after suffering from decades of benign neglect.

The challenge for providers of transportation services is to leverage current assets while wisely exploring the development and deployment of new technological innovations that indeed may cannibalize existing core assets.  Just how many public sector managers and leaders are capable of being ambidextrous is problematic when operating in a political environment.

But to paraphrase Bob Dylan, when the times, they are a-changing, you must too.