Industrial strategy, development, and the need for public production

We are told that Capitalism, at its core, is a crisis-driven economic system. Crises are at the heart of its innovation, transformation of the economy, and are the reason creative destruction is the defining point raised by proponents of this economy-first, anti-social system. However, any reader of history knows that it is only through the leverage and investment of the state that capitalism can find the path around the economic crises it creates. Capital needs to be held-up and protected or -- like most short-sighted adventures -- it runs aground. The alternative is not to hold capitalism up, but to replace it and the response to COVID-19 shows a way forward.

Industrial strategy, development, and the need for public production
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The need for public production

In present day, Western capitalist society has reduced the buffer the state had to deal with crises through decades of cuts, privatization, and fad-driven business management styles. While those from the more classical economic tradition were not surprised by intrusion of capital into the public sector, we found the ideological adherence to the more extreme elements of this ideology rather odd. Neoliberal capitalist policies demanding growth at any cost have undermined the state's ability to save it from itself. It is this contradiction that leads those from the classical economic tradition to talk about the seeds of its own destruction being inherent in capitalism.

As has been the case through its short history, capitalism needs the state as its saviour once again. This opens-up an opportunity for those who seek a more rational and less socially and environmentally destructive economy.

The failures of the capitalist system to provide is always available to those who want to see them. Crises fully expose the failures. The 2008 crisis where the masses watched in confusion at the inability of those "in charge" to do anything. Capital took the state of confusion as an opportunity to retool and reinvest its money into even less socially productive but profitable ends. The result was a long stagnation, investment in socially destructive advertising/propaganda technology, but none of the promised "transition" necessary for a greener future.

The current crisis feels different. Unlike the previous long economic recession, the current health crisis – rooted in the unaddressed climate emergency, and a decimated state – affects everyone. At the same time as the state's inability to invest in what we need contrasted with the ever-present reminder of the supreme power of the state to impose social lock-downs.

The contradiction leads the regular worker to ask why it is that the state can force everyone to stay home and slow business activity, but cannot do the opposite? Why can it not put us to work safely or provide for our basic needs?

Indeed, it could if it was not for capital telling it not to.

The failure of capital to "rationally" distribute investment to where it is needed is made clear to anyone looking at current financial markets. Even our pension funds no longer pretend to have productive development as their goal when investing. Profit seeking has been exposed as totally independent and only accidentally associated with needed/desired outcomes. Because of this, a rational investment response cannot be found in the "Free Market".

The only alternative is state-mediated/directed investment.

Call it what you like: regulation, direct investment, National production, industrial strategy, strategic investment, planning, public procurement. It all comes down to state-mediated and supported investment in productive industry. The best option for this to give The best outcomes (and given the social crisis) is going to be democratic state-mediated investment.

Luckily, in Canada, we still have a few public institutions and entities that can be utilized to support this process.

Namely, the National Research Council, power and other public utilities, transport, universities, federal ministry services, Crown companies, and postal services/logistics. Many of these are still coordinated, controlled by, and financially dependent on public funds. Some are even entirely directed by the public.

Financing investment must be grounded in real economics. Money is not magical but the state has some options available to it that are not currently being considered:

  • pension money and pension nationalization
  • public productive capacity investment
  • natural resource development (through public ownership)
  • Expropriation of under-utilized capital
  • debt forgiveness
  • true wealth transfer and redistribution

Combine public institutions for research and development with the ability of the government to direct public money into production, and you have a clear answer to the question of how to get where we need to be.

National Research Council, a place to start public production

The National Research Council (NRC) is a relic from a previous global crisis: the Great War (NRC was established in 1916). It was during this first major crisis of modern capitalism that the state realized that capital needs direction if it is to produce what we want. The NRC (its unstructured predecessors included) and the research funding and coordination organizations that have come out of it such as the Medical Research Council, now the Canadian Institutes for Heath Research (CIHR), and the National Science and Engineering Research Council (NSERC) are at the heart of Canada's research and innovation program. Without this massive mobilization of government funding and research program, innovation would be all but absent in Canada. And, there would certainly be many fewer world-class Canadian industries.

The research paradigm that these institutions were based around before the neoliberal era and before "innovation" was a capitalist buzzword, was a three-pronged approach to advanced research.

  1. basic research
  2. industrial research
  3. applied research

Oversimplification of this process can be understood as:

  1. Basic and curiosity-driven research happening in universities through government funding. This is the space where true "innovation" (using its original definition) happens.
  2. Industry-level research happening in NRC-type outlets, government ministry-aligned research programs, and state-owned or strategic monopolies in talcum, power, natural resources, and production. The purpose of this research is regulatory and the development of a necessary industrial base rooted in the priorities set by the government.
  3. Applied research happening in public utilities, colleges, and the corporate sector that solve specific problems or seek specific solutions to a consumer-level focus or fulfill government procurement. This is a space where all the previous research it turned into specific designs for consumer goods and usually where capital invests in production.

Since the 1990s, Canada (and most of the OECD list of rich capitalist countries) have tried to smash these independent and necessary research structures together in an attempt to lower government spending and find the ever elusive efficiencies. The problem is that the nexus of true innovation requires all these separate, independent parts. The result of state-level "efficiency" has been a complete collapse of broad industrial strategy and research capacity in Canada.

NRC still exists and supports military and some necessary industrial development. It has spun off major programs into other areas. One was the medical research council that was started to support public healthcare so that Canada would not have to rely on international corporations for cheaper, more efficient methods and products in the medical sphere. It has since deviated somewhat from this mission and is now a subsidy to university research in medical sciences with an aim for corporatization of health services and products.

NSERC – what was supposed to fund mostly basic science and engineering research – has slowly been transformed into a program to support commercialization programs for science and engineering in universities. There are also numerous subsidies and public foundations that try to get private capital to invest in research and development, but these along with the commercialization program at universities have mostly failed in their goal to provide cheap Canadian product development.

The foundation of a state research and production arm are still there. They just need to start being the first place government looks to for instigating industrial production instead of the last begrudging step after capital has failed.

NRC has recently been tapped to produce vaccine for COVID-19 virus. However, this has only happened because after a year of failed pleading with global pharmaceutical companies to invest in production in Canada. The failure to realize the reasons why Pharma will not invest in Canadian production has cost us at least a year delay in our vaccine production and rollout and probably many lives.

Other issues currently faced by production in Canada are similar to this and could be solved in the same way:

  • semiconductor shortage (currently idling our auto plants)
  • biologic drug production (in fact, the only reason that NRC was able to ramp up production of the vaccine was because it was doing research on biologic production)
  • antibiotic, antiviral, antifungal resistant drug development
  • green energy transition
  • green infrastructure investment
  • industrial-level energy storage and battery production
  • solar and wind turbine production
  • LED and low-energy lighting production
  • high-speed transport infrastructure
  • aerospace development
  • personal protective equipment and air exchange

The list goes on, but these would be a good start to using the NRC and other state organs to produce the things that Canadians need.

Part of the reason that we cannot pivot to the future we want is because we cannot produce the things we need here without pleading with capital to do it for us. During the wars governments (and capital) realized that this was not going to work. It still does not work as capital is not a rational system responding to our need, but a system that invests only along expectations of profit maximization.

If we want a pivot to green energy, then we need the productive capacity here to make the green products that replace the current undesired things.

If we want public health care to not bankrupt the government, we need to invest in publicly owned intellectual property and non-profit production of innovative medical devices.

If we want public pharmacare that is sustainable, we need to produce the new drugs we need under public licence, produced in public facilities, at scales where we are not just negotiating price, but setting the price at cost of production because the (biologic or new age) drug and production patent is public and free.

If we want to pivot to electric vehicles and transport, we need to have the battery production – including everything in a battery we can produce or dig up (including lithium), energy storage, and local charging infrastructure produced in Canada.

If we want quality jobs for laid-off workers from private carbon-intensive jobs – to fulfill our Just Transition dreams, then we have to create the jobs here that produce what we need for a green future.

The benefit of having a publicly owned base of research and production is that the capacity to expand and produce what we need is there when we decide we need it. The COVID-19 vaccine response points the way to a future where the public sector takes its historical place as not just the funding partner for innovation to drive private profits, but the investor in publicly owned productive capacity.