The possible emergence, from both left and right of the political spectrum, of a new economic policy paradigm could supersede neoliberalism. The new framework gives governments and communities greater responsibility to shape investment and production – in support of good jobs, climate transition and more secure, resilient societies – and is much more suspicious of markets and corporations than the outgoing paradigm. I call it “productivism”, but others might have sexier names.

In history, the economic ideology pendulum has swung from deification of markets to reliance on the state and back again. Superficially, we appear to be in the middle of another realignment. It was perhaps inevitable that neoliberalism’s excesses – more inequality, concentration of corporate power, and neglect of threats to physical and social environments – would trigger a backlash.

But establishing new paradigms requires novel approaches, not just emulating the old. When the New Deal and the welfare state replaced the freewheeling capitalism that preceded them, policymakers did not simply revert to former mercantilist practices. They created new regulatory regimes and social insurance, and embraced macroeconomic management in Keynesianism.

Similarly, if productivism is to be successful, it will have to move beyond conventional social protection, industrial policies and macroeconomic management. It will need to internalise lessons of past failures and adapt to fundamentally new challenges.

Industrial policies work

State interventions aimed at reshaping an economy – industrial policies – are faulted for being ineffective and vulnerable to capture by special interests. “Governments cannot pick winners,” as the adage goes.

Much of this criticism is overdone. There have been notable failures, but studies find industrial policies encouraging investment and job creation in disadvantaged regions have often worked surprisingly well.

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Public-sector initiatives have been behind the hi-tech successes of our time, including the internet and GPS. For every Solyndra, the US solar maker that failed spectacularly despite $500-million in government guarantees, there is a Tesla, the electric battery and vehicle manufacturer that also got government support.

The most effective industrial policies entail close, collaborative interaction between government and private firms, with companies getting public inputs – financial support, skilled workers or tech assistance – in exchange for meeting soft and evolving targets on investment and employment. Such industrial policy is likely to work better – in promoting local development or directing national technological efforts – than open-ended subsidies or tax incentives.

While traditional forms of social assistance, especially better education and healthcare, can help, connecting people to productive job opportunities requires improvements on the demand side of the labour market as well as on the supply side. Policies must directly boost the quantity and quality of jobs available for the less educated and less skilled everywhere.

The bulk of these jobs will come not from manufacturing, but services such as healthcare, long-term care and retail. In the US, almost all new jobs in the private sector since the 1970s have been in services. Less than one in 10 workers are currently in manufacturing. Even if policy “reshores” manufacturing and supply chains, the effect on employment is likely to be limited.

East Asian manufacturing superstars South Korea and Taiwan provide sobering examples. While the share of manufacturing value added in GDP in these countries has increased rapidly, their manufacturing employment ratios have steadily declined.

Good-jobs strategy

Much US policy is focused on promoting hi-tech manufacturing, including a bill to provide $52-billion in funding for semiconductors. This aims to enhance US national security vis-à-vis China and create good jobs. But, even if the first objective is met, the second is likely to remain elusive.

A similar point can be made about the subsidies for green technologies. The green transition is a priority for the new paradigm, but here, too, governments cannot kill two birds with one stone. Policies that target climate change are not a substitute for good-job policies, and vice versa.

Shoring up a middle class and disseminating the benefits of technology through society needs a good-jobs strategy. Such an approach would not be fixated on competition with China, would target services rather than manufacturing, and would focus on worker-friendly technologies.

Price stability is a sine qua non for the pursuit of productivist economic policies. But a return to orthodox macroeconomic approaches focused on monetary tightening and deficit reduction will leave little fertile ground for innovation and experimentation.

Ultimately, what economies need is sound ideas, not necessarily a new paradigm. By the time ideas become conventional wisdom, they are riddled with generalisations and truisms, unhelpful and misleading. DM168/www.project-syndicate.org

This story first appeared in our weekly Daily Maverick 168 newspaper, which is available countrywide for R25.