Podcast Summary
Industrial Policy: Industrial policy can play a crucial role in economic development by fostering financial innovation and infrastructure development, ultimately leading to strong economies.
Equities and bonds, despite occasional positive correlation, serve important diversification functions in a well-balanced investment portfolio. Looking beyond economics, there's a significant shift in national attitudes towards industrial policy, with examples of successful implementation in the US under Alexander Hamilton, Germany in the late 19th century, and post-war Japan, South Korea, and Taiwan. These countries used industrial policy to build strong economies, with Hamilton's efforts focusing on financial innovation and infrastructure development.
Infant industry protection: Historically, governments have used protective measures like tariffs to help domestic industries grow and compete against foreign competitors, but success varies widely
The role of government in the development of heavy industries, particularly in countries like the United States, Japan, South Korea, and China, cannot be underestimated. Historical figures like Alexander Hamilton and Friedrich List are considered intellectual fathers of the idea of infant industry protection, which involves using tariffs and other protective measures to help domestic industries grow and compete against more established foreign competitors. While some may view this as a pro-tariff or anti-globalization stance, it's important to note that this approach has been successful in certain cases, such as the development of heavy industries in China through a combination of guided finance and protection at the border. However, it's also important to acknowledge that this approach has not always been successful, and there are numerous examples of countries attempting to create competitive modern industries through protection that have resulted in disasters. My experience at the World Bank taught me that the list of such failures is very long, but there are also some success stories.
Comparative advantage industries: Identify industries within a country's long-term comparative advantage, focus on them, and avoid permanent subsidies to ensure their competitiveness in the global market.
For a country to successfully develop its industries, it's crucial to identify areas that are within its long-term comparative advantage and focus on them. These industries should be competitive and not rely on permanent subsidies that hinder their ability to compete in the global market. The US achieved this through a large domestic market that fostered internal competition, while other countries ensured their industries could compete in export markets before providing subsidies. It's essential to avoid featherbedding industries and instead, encourage competition to ensure long-term success.
Government picking winners: Governments should avoid picking winners in industries and instead provide equal support to all players to foster competition and innovation, leading to the industry leader emerging naturally.
History shows that governments should avoid picking winners in industries and instead focus on providing equal support to all players. This approach, as seen in the example of the electronics industry in Korea and the US, leads to natural competition and innovation, ultimately resulting in the industry leader emerging on its own. With this context, it's questionable whether the policies of a Biden or a Trump can effectively build a green energy industry or rebuild manufacturing in the US, given the lack of an overwhelmingly dominant market size in these areas. The US faces competition from market leaders in these industries, such as TSMC in chips, which may make it challenging for domestic companies to compete without protection.
National Security Industries: Shifting production from China to ensure national security may lead to higher costs and less employment due to automation, but investing in American workers for returns is a focus.
There is a growing consensus that reducing reliance on China for key industries, particularly those related to national security, is necessary. However, this shift towards domestic production may come with costs, such as higher prices for inputs. It's important to note that the industries in question may not generate the same level of employment as in the past due to automation. Instead, the focus should be on providing typical American workers with access to investment opportunities to generate returns. The policy is not about reviving the old industrial employment model but rather about ensuring national security and economic resilience. It's a complex issue with no simple solutions, but it's a conversation worth having.
Appreciating aging societies: Embrace the aging process and the continuation of life as a great success for humanity, recognizing the accumulation of experiences and knowledge throughout our lives, and eventually reaching a new equilibrium with a gentle increase in birth rate.
According to Martin, we should appreciate and invest in aging societies and the longevity of human life. He argues that the fact that we've made it to old age is a great success for humanity, as it means we've been able to accumulate experiences and knowledge throughout our lives. Additionally, he believes that we will eventually reach a new equilibrium where there will be a gentle increase in the birth rate, making babies an investment worth considering as well. Overall, Martin encourages us to embrace the aging process and the continuation of life, recognizing the extraordinary achievement it represents.
Production of The Unhedged podcast: The Unhedged podcast is produced by Jake Harper, Bryant Erstadt, and a team of experienced professionals at the Financial Times. It is free for FT Premium subscribers and offers a 30-day free trial for others.
The Unhedged podcast, produced by Jake Harper and edited by Bryant Erstadt, is brought to you by the Financial Times. The podcast is free for FT Premium subscribers, and a 30-day free trial is available for others. The executive producer is Jacob Goldstein, and they had additional help from Cheryl Bromley of the FT's global head of audio. Special thanks were given to Laura Clark, Alistair Mackey, Greta Cohn, and Natalie Sadler. Listeners are encouraged to sign up for the Unhedged newsletter for free on FT.com/Unhedged, Offer. The podcast covers various financial topics and is produced by a team of experienced professionals at the Financial Times.