American Industrial Policy in Action

Scott Lincicome

In case you haven’t noticed, U.S. industrial policy is having (yet another) moment. Armed with the latest data and cross-country comparisons, a large and bipartisan cadre of industrial policy advocates in Washington are eager to shovel billions of taxpayer dollars into the open arms of American manufacturers of “essential goods” and “critical technologies.” The risks (China, pandemics, whatever), so the theory goes, greatly outweigh any harms that a few, scattered industrial policy failures might cause along the way, so why not just throw money at the (perceived) problems? These advocates, however, rarely acknowledge the frequency of such failures – caused by a host of well-known obstacles to effective American industrial policy (e.g., the “knowledge problem,” public choice, unintended consequences, budgetary overruns, opportunity costs, and plain ol’ inefficacy) – or fully account for the harms that industrial policies can impose on the U.S. economy and the very objectives that the policies seek to achieve. I documented some of these industrial policy failures in a recent Cato paper, but yesterday’s New York Times provides the best example that I’ve seen in a long, long time:

WASHINGTON — More than eight years ago, the federal government invested in an insurance policy against vaccine shortages during a pandemic. It paid Emergent BioSolutions, a Maryland biotech firm known for producing anthrax vaccines, to have a factory in Baltimore always at the ready.

When the coronavirus pandemic arrived, the factory became the main U.S. location for manufacturing Covid-19 vaccines developed by Johnson & Johnson and AstraZeneca, churning out about 150 million doses as of last week.

But so far not a single dose has been usable because regulators have not yet certified the factory to allow the vaccines to be distributed to the public. Last week, Emergent said it would destroy up to 15 million doses’ worth of the Johnson & Johnson vaccine after contamination with the AstraZeneca vaccine was discovered.

Emergent and government health officials have long touted their partnership as a success, but an examination by The New York Times of manufacturing practices at the Baltimore facility found serious problems, including a corporate culture that often ignored or deflected missteps and a government sponsor, the Biomedical Advanced Research and Development Authority, that acted more as a partner than a policeman.

But wait, there’s more:

Emergent is a longtime government contractor that has spent much of the last two decades cornering a lucrative market in federal spending on biodefense. The Times reported last month that sales of its anthrax vaccines to the Strategic National Stockpile accounted for nearly half of the stockpile’s half-billion-dollar annual budget throughout most of the last decade, leaving the federal government with less money to buy supplies needed in a pandemic.

And more:

In 2012, the Department of Health and Human Services awarded three contracts, including one to Emergent to retrofit and expand its Baltimore site. And between 2015 and 2019, the government placed a handful of relatively small orders for doses of treatments and vaccines being developed for use against viruses including Ebola and Zika.

The contract also required Emergent to stand ready to produce up to 50 million doses of vaccine within four months in the event of an influenza pandemic. To show that it was up to the task, Emergent was supposed to work with a company developing a flu vaccine candidate and seek F.D.A. approval to manufacture it by June 2020….

When the June 2020 deadline arrived, Emergent hadn’t met the flu requirement, but the government nevertheless awarded it a $628 million contract to manufacture Covid-19 vaccines.

Overall, the Times reports that Emergent situation – bearing almost all of the hallmarks of American industrial policy in action – has imperiled tens of millions of Covid-19 vaccine doses. Fortunately, the United States has other vaccine alternatives, including J&J doses imported from the Netherlands, and, of course, the hundreds of millions of jabs made here by Moderna and Pfizer.

Pfizer’s case, in particular, provides a clear alternative to the top-down planning and industrial policy that’s so hot right now. As I explained a few weeks ago:

The vast majority of the hysteria we heard about empty store shelves and the failures of globalization proved meritless—instead reflecting a single, shocking moment in time that markets, companies, and governments mostly addressed in a matter of months (“seemingly out of nowhere”). Today, some of the biggest impediments to our economic recovery are U.S. trade restrictions, not “free market fundamentalism” or whatever.

Meanwhile, Pfizer and [Germany's] BioNTech were quietly working on their miraculous COVID-19 vaccine, leveraging Pfizer’s substantial pre‐​existing U.S. manufacturing capacity, multinational research teams stocked with immigrants, global capital markets and supply chains, and a logistics and transportation infrastructure that had developed over decades to deliver those “cheap consumer goods” that the populist punditocracy loves to hate. The companies went from concept to final delivery of millions of vaccine doses in about nine months—just as their management boldly predicted last April. Surely, some state support (e.g., grants for previous mRNA research and vaccine purchase commitments) was involved, but the Trump administration’s contract with Pfizer expressly excluded from government reach R&D, clinical trials, and manufacturing supply chain issues (i.e., “activities that Pfizer and BioNTech have been performing and will continue to perform without use of Government funding”). Thus, even the uber‐​nationalist Trump White House realized that government attempts to “nationalize” and micromanage the vaccine’s development and delivery would have delayed—if not thwarted—those processes, costing numerous American lives along the way.

When time was of the essence and success really, really mattered, they just got out of the way. And it worked.

The Pfizer vaccine thus provides a valuable lesson regarding the dynamism and capabilities of the U.S. manufacturing sector and the free(ish) market more broadly – a lesson now greatly amplified by the Emergent fiasco and its contrasting industrial policy approach.

It’s an open question, however, as to whether anyone in Washington will heed it.