Biden administration makes a long-term bet with its CHIPS plan
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Biden administration makes a long-term bet with its CHIPS plan
Companies that want some of the billions of dollars in government money earmarked to bring the manufacturing of semiconductor chips back to America will have to provide childcare to workers. That and other conditions on the federal money were announced this week by the Biden administration. This is industrial policy, meaning the government is getting involved with how businesses do business.
The move represents a big shift, says Felicia Wong, President and CEO of the liberal-leaning Roosevelt Institute. Marketplace’s David Brancaccio spoke with Wong about what exactly these conditions entail.
The following is an edited transcript of their conversation.
David Brancaccio: Government money that comes with strings attached — I think of the need to include minority-owned contractors. So it’s not new attaching conditions, yet you think what’s happening with the CHIPS Act and other legislation is a big shift?
Felicia Wong: I really do, because what we’re seeing now, in the Commerce Department’s announcement of how they’re going to give out money to semiconductor firms is not just a one-off, it represents government spending real money to crowd in private investment in sectors that they actually want to see grow. That could be the semiconductor industry, which we’re going to talk about here, it could be electric vehicle manufacturing in the United States, it could be solar and wind in the United States. So government pointing the economy in particular directions that are good for the public, good for the planet, that is new.
Brancaccio: Some people are listening Felicia and going, doesn’t that sound like Eastern Europe? Central planned economy, the government knows which direction we should turn and the market, maybe less so?
Wong: I wouldn’t say that it’s like Eastern Europe. I wouldn’t say that that old picture of the Soviet Union is exactly what we should have in our heads. But I do think we should recognize that governments always shape markets, right? Governments always prioritize, that they want some sectors to grow and other sectors not to grow. It’s just that since the 1980s and the 1990s, what government has done is made it easier for the finance sectors to grow, right? It’s made it easier for capital to move. And what we’re seeing now is an explicit direction, saying, “Hey, no, we want manufacturing jobs to grow in this country, and we want those manufacturing jobs to be clean.” And that’s the kind of above the board planning towards a North Star for our economy that I can really get behind.
Brancaccio: Is there a bang for the buck problem here? Let me put it this way, if the goal is to build 12 bridges with some infrastructure money and these strings, perhaps good ones, like providing child care to employees, but that could mean we get not 12 bridges, but 10 bridges, instead. It would dilute the power of the infrastructure spending.
Wong: Well, but what you’re saying there, right, is that the only thing that you should measure in this policy is those 10 bridges. And what I think is so remarkable about the way that Commerce Secretary Gina Raimondo envisions this whole effort is that it’s yes, sure, it’s about the bridges, it’s about the semiconductor fabs, but it’s actually about much more than that. She’s saying that the vision is an America that is a technological leader in the world. And she’s saying that the vision is having whole places in America — could be places that have been left out for a very long time, you know, deindustrialized, hasn’t seen very much investment — she is actually explicitly envisioning places in America that, sure they have those bridges, they have those factories, but they also have thriving families, thriving communities, people with good jobs. So that’s how you have to measure the outcome here.
Brancaccio: A much more wide net than thinking about how many people are going to get broadband internet, or what is the microprocessor output going to be from these eventual factories?
Wong: Yeah, that’s totally right. It’s a much bigger picture. Now, I’m not going to say that this is going to be easy to implement. We’re going to have to measure over at least a decade, but I do think that the fact that this government is starting with a vision and not just with a program, that’s a big deal.
Brancaccio: 10 years is gonna be other administrations, right? That’s a challenge.
Wong: Yeah. So part of this right is about building a program that’s going to last and part of this is about, again, crowding in private money — investment from companies like Intel or like Micron, that they are going to actually stick around. One of the challenges in all of this industrial policy is how do you actually make it sticky? So that whether or not a Republican or a Democrat is in office, how do you build something that’s going to actually have a virtuous cycle and actually create a thriving economic environment? That is the goal here.
Brancaccio: You know, childcare stood out. What else is in there that sticks out to you?
Wong: Yeah, well there are other requirements for companies that get federal money too. One of the most interesting is that companies who get this CHIPS money need to agree to share some of their upside profits back with the federal government. We’ve seen this before. We’ve seen this before with the auto bailout. But this is actually an important way to make sure that companies don’t just take all that federal money and run right. Another interesting provision is that companies that take this money have to show that they’re not going to use it to buy back their own stock, which, of course, as your listeners know, is basically a method that companies can use to enrich their own shareholders and enrich their own executive salaries, kind of by juicing the stock price. So there are some important conditions on this money such that maybe this won’t be just quote, “corporate welfare,” and giving money out to companies that, let’s face it are already profitable.
Brancaccio: Yeah. And on the stock buybacks, you know, what could you do? You could give the money back to shareholders or you could use it to invest in your own company’s research and development to come up with even better, for instance, microchips. That’s often the trade off.
Wong: That is exactly right. You could pay your workers more you could invest in research and development, you could expand your own physical plant. And that’s the kind of thing the government wants companies to be doing. Building their own facilities and growing. That’s what some of this money should be used for.
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