An industrial policy that dares not speak its name
Why SpaceX and Tesla show the promise - and limits - of America's current approach to industrial policy
In one of the strangest controversies of the year thus far, Saturday Night Live stirred up a minor online kerfuffle when it announced that Tesla and SpaceX CEO Elon Musk would host the late-night show on May 8. Over the years, Musk’s public persona has evolved into that of a living, breathing meme who shared a joint with podcast host Joe Rogan, bestowed the functional equivalent of a screen name on his firstborn child, encouraged the brief frenzy around GameStop stock earlier this year, and sings the praises of the joke cryptocurrency dogecoin. Musk’s recent social media antics only make his ambition to colonize Mars appear only marginally less half-baked by comparison.
However, Musk’s ultimate claim to fame rests not on his social media antics but on his reputation as a visionary technological entrepreneur. That reputation in turn rests on a foundation of public funding – not Musk’s own personal entrepreneurial acumen or incisive sense of technological possibility. Indeed, it’s hard to say that either SpaceX or Tesla would have survived to the present without substantial public investment at critical moments. Musk’s frequently tiresome public escapades notwithstanding, more than anything else the stories of Tesla and SpaceX are those of industrial policy done right. But they also illustrate the limits and challenges inherent in an industrial policy that dare not speak its name.
Like other industrial barons throughout American history, Musk built his corporate empire with help of the American people and their government. Tesla, for instance, received a $465 million loan from the federal government as part of the Obama administration’s 2009 economic stimulus package. Had it not been for this infusion of public funds, Tesla may not have survived the 2008 financial crash and ensuing recession. Though Tesla still does not make money building and selling electric vehicles, the company paid back the federal loan ahead of schedule in 2013 and today stands as the world’s leading electric vehicle maker.
SpaceX owes even more of its success to public funding, mainly via NASA and U.S. military contracts. By 2017, the company received some $7.7 billion worth of contracts from NASA for the delivery of cargo and, more recently, astronauts to and from the International Space Station. What’s more, SpaceX recently won a $2.9 billion contract to build the lunar lander that will take astronauts back to the Moon at some point later this decade. On top of NASA funding, SpaceX also broke into the national security launch market, winning some $893.6 million worth of contracts to launch military and spy satellites from over the past decade. It’s also won contracts for another 40 percent of all national security launches over the five years starting in 2022, potentially totaling an additional $2 billion in taxpayer money.
So far, NASA and the Department of Defense have received good value for the money they’ve spent on SpaceX, with the company typically offering lower prices for launch, cargo, and crew services than its established aerospace competitors. It bid roughly $1.8 billion less than rival Boeing to taxi astronauts to and from the International Space Station for NASA’s Commercial Crew Program, for instance, and has already flown operational missions while Boeing’s spacecraft has yet to fly its first crewed mission. But it’s profoundly misleading to characterize these accomplishments as principally the result of Musk’s lone entrepreneurial genius or a triumph for the heroic private sector.
Such portrayals fit snugly within the intellectual models of political economy that have dominated our collective thinking about the subject for the past four decades or so. These narratives tell us that only the private sector creates economic value and that the best thing the public sector can do is to get out of the way – or, at best, provide tax credits supposedly designed to spur innovation. Industrial policy, in this telling, only gums up the works. When he pursued military launch contracts for SpaceX in 2014, for instance, Musk claimed that the contracts won by his company’s more established competitors amounted to subsidies that blasphemed against free market orthodoxy – conveniently ignoring the billions of dollars in NASA contracts SpaceX had already won at the time.
Again, the importance of public funding to Musk’s companies doesn’t gainsay their real achievements. But the erroneous narratives propagated about Tesla and especially SpaceX create harmful false impressions about the role of public investment in national economic development and technological innovation in the minds of policymakers and the public alike. These companies ought to be lauded as successful examples of industrial policy and productive cooperation between the federal government and private industry. Instead, they’re taken as yet more evidence for the allegedly nimble free market and the myth of the solitary inventor rather than points in favor of robust public investment in cutting-edge technologies and up-and-coming industries.
Though new ways of thinking about political economy have begun to seep into the political mainstream in recent years, our discussions about industrial policy tend to remain stuck in the conventional wisdom of the past forty years. But as the left-wing economist Mariana Mazzucato argues, public funds play an indispensable role in technological innovation and national economic development. It’s hard to imagine SpaceX proving as successful as it has had not the federal government – primarily via NASA and military contracts – used its substantial economic power to create robust markets for its services. Similarly, Tesla will likely reap a windfall from President Biden’s proposed ten-year, $174 billion plan to build out America’s electric vehicle infrastructure – making the Obama-era bailout of the company appear far-sighted in retrospect.
Still, for every Tesla and SpaceX there’s a Fisker or a Solyndra – public investments in risky industries that didn’t quite pan out. Thanks to the structure of these investments, moreover, the public often assumes the cost of failures while seeing little direct return on success: we perversely socialize failure and privatize success. Some policy experts have suggested ways to overcome this problem: Jonathan Gruber and Simon Johnson call for an “innovation dividend” derived from public ownership of the land on which their proposed research and development hubs would be built,while Mazzucato has floated the idea that the public loans should be structured to give the government an equity stake in the companies it supports financially.
These ideas don’t represent the entirety of the debate over the future of America’s industrial policy. Indeed, there’s much room to discuss what the nature and scope of that industrial policy should be. But for that debate to even begin and prove productive, we’ve got to recognize that we already have an industrial policy – even if we refuse to call it by that name.
Jonathan Gruber and Simon Johnson, Jump-Starting America: How Breakthrough Science Can Revive Economic Growth and the American Dream (New York: PublicAffairs, 2019) p. 190-195.
Mariana Mazzucato, Mission Economy: A Moonshot Guide to Changing Capitalism (New York: Harper Business, 2021) p. 190-191.